Aviation: digitalization and decarbonization in a key global industry

As the aviation sector navigates an uneven post-pandemic recovery, it faces simultaneous pressures to decarbonize, digitalize and adapt to shifting geopolitical realities.

In this Q&A, Lune Wang, Senior Vice President at Novus Aviation Capital, discusses the gradual adoption of digital methods in the aviation industry, the challenges of aircraft leasing in a risk-laden environment and the growing influence of decarbonization.

Q. How has the global commercial aviation market developed over the past decade?

A. Aviation is inherently cyclical, and the past decade clearly reflected a full cycle. Before the pandemic, the industry enjoyed a sustained upswing, with global passenger traffic growing about 5% to 6% annually. Airlines placed record-breaking orders for next-generation narrow-body aircraft such as the Airbus A320neo and Boeing 737 MAX families, driven by strong economic growth—especially in Asia—and the push for fuel efficiency.

Then COVID-19 brought the sector to an abrupt halt in 2020. Around 61 airlines went into Chapter 11 bankruptcy protection, and at the peak, roughly two-thirds of the world’s fleet was parked. Passenger traffic collapsed by more than 60% in 2020. Yet the rebound that followed was surprisingly strong. Today, global traffic is back at or slightly above 2019 levels, though recovery remains uneven across regions and aircraft segments.

At the same time, supply chain constraints, labor shortages and engine delivery delays have become major bottlenecks for manufacturers like Airbus and Boeing. This has supported higher asset values and delayed the retirement of older aircraft, keeping demand strong for both new and vintage models.

Q. Can you break down the post-COVID rebound a bit further?

A. Recovery has been staggered. The United States and Europe reopened much earlier than China and other Asian markets, so they saw passenger numbers rebound sooner and more sustainably. By the end of 2023, global revenue passenger kilometers (RPKs) had recovered to about 95% of pre-pandemic levels, led by strong leisure travel demand.

Regions with large domestic markets—such as the US and India—have outperformed. India, for instance, has become the world’s third-largest domestic aviation market. Indigo’s recent order for 30 additional Airbus A350-900 aircraft demonstrates growing confidence in long-haul expansion.

However, business travel remains subdued. It is still about 20–30% below 2019 levels due to the shift toward virtual meetings and hybrid work. In Asia, the rebound has lagged, with China’s domestic recovery slowed by both economic headwinds and competition from high-speed rail, which now offers a potentially faster and often cheaper alternative on key routes.

Q. China has invested heavily in developing its own commercial aircraft, particularly through COMAC’s C919 program. To what degree is the C919 competitive in the global market?

A. China’s drive for self-sufficiency in aviation is a long-term strategic priority, backed by an estimated $70 billion to $100 billion in investment. The C919 is central to that goal and has secured more than 1,200 orders—mostly from Chinese airlines and leasing companies.

On paper, the C919 is comparable in size and range to the A320neo and 737 MAX. However, most experts consider it closer technologically to an earlier generation like the A320ceo or 737NG. While it uses modern, leading-edge aviation propulsion (LEAP) engines, its overall fuel efficiency reportedly falls short of its Western peers.

Its biggest challenge is not technical but geopolitical. Certification by the FAA or EASA is required for operation in the US and EU, and that process involves deep, on-site audits of COMAC’s design and production systems—something unlikely in the current political climate. Moreover, the global support ecosystem for maintenance, spare parts and trained engineers, which Airbus and Boeing have built over decades, is a major barrier to entry. As a result, the C919 will likely remain primarily a domestic player for the foreseeable future.

Q. Sustainable aviation fuel (SAF) is often cited as key to the industry’s decarbonization. How would you assess global progress so far?

A. SAF [an alternative fuel made from non-petroleum feedstocks that reduces emissions from air transportation] has made solid technological progress but remains commercially constrained. There are now five globally approved production pathways, yet SAF accounts for less than 0.2% of total jet fuel consumption as of 2023. The main issue is cost—it’s still two to four times more expensive than conventional jet fuel.

Europe is leading policy-wise. The EU’s “RefuelEU Aviation” mandate requires 2% SAF usage by 2025, rising to 70% by 2050. The US is supporting production through tax credits under the Inflation Reduction Act. Both regions are using mandates and incentives to de-risk investment in new facilities.

In Asia, progress is uneven. Singapore and Japan are advancing, while others lag. China has potential advantages thanks to its vast feedstock resources, but export restrictions and strategic control over those materials make long-term supply agreements difficult. Despite this, SAF’s role is inevitable—the entire industry recognizes it as the only viable decarbonization pathway for now.

Q. To what degree will Europe’s more aggressive decarbonization goals push other regions to follow suit?

A. Aviation is a global industry; few airlines can remain insulated from European or US standards. If an airline wants landing rights in those markets, its fuel mix must comply with their regulations. While the EU’s 70% target for 2050 is ambitious and may evolve, it will set the global benchmark.

Over time, all major carriers—especially long-haul operators—will need to align. Even if the policies differ, the trajectory toward SAF adoption and emissions reduction is universal.

Q. How is digitalization—and increasingly AI—affecting aviation and aircraft leasing?

A. Aviation has been digitalizing for decades, but adoption remains slower than in other industries. For instance, despite having fully digitized aircraft records, buyers still often demand hard-copy documentation—sometimes 20 boxes worth—when transferring ownership.

That said, AI and predictive analytics have enormous potential. Predictive maintenance tools can analyze flight data to forecast component failures weeks in advance, potentially cutting unscheduled maintenance by up to 30%. AI could also improve aircraft valuations, optimize leasing portfolios, and enhance market forecasting.

However, implementation is still limited. Aircraft leasing remains a relationship- and expertise-driven business, and companies are cautious about adopting AI systems before their reliability is proven.

Q. What are the major financial risks in aviation leasing today?

A. The key risks are interest rate, credit and liquidity risk—plus concentration and geopolitical exposure.

To manage interest rate risk, lessors use hedging tools such as interest rate swaps, currency cross-hedges and diversified funding in multiple currencies. For credit risk, rigorous monitoring of airline partners and diversification across regions and asset types are essential; no more than about 15% of a portfolio should be exposed to a single region or model type.

For liquidity risk, maintaining strong relationships with 20–30 global banks and access to insurance-backed financing mechanisms—such as those from Euler Hermes, UK Export Finance or Japan’s JOLCO structures—is critical.

Geopolitical risk, however, has become more prominent since the sanctions on Russia. Roughly 70% to 80% of Russia’s 980 leased commercial aircraft were stranded after 2022, wiping out about $10 billion in value. That event permanently altered global insurance structures and raised premiums industry-wide.

Q. How are current geopolitical tensions shaping investment decisions?

A. The US–China tensions are disruptive but not catastrophic. The real systemic shock came from the sanctions on Russia, which shattered confidence in cross-border leasing. Since then, lessors have applied far stricter geopolitical stress tests.

Markets like Taiwan and Israel are also being approached with caution, even without active conflict. Investors rarely state it outright, but risk appetite for these regions has noticeably declined. Lease rates now include a “political risk premium” to reflect that uncertainty.

Q. Looking ahead, what do you see as the major trends for aviation over the next decade?

A. Three trends stand out. First, AI and data-driven operations will increasingly shape both airlines and lessors, even if adoption remains gradual. The ability to predict, model, and price risk dynamically will redefine asset management.

Second, SAF and decarbonization will move from compliance targets to core strategy. The infrastructure and incentives being built today will fundamentally reshape fuel sourcing and aircraft design by 2035.

Third, we’ll see a continued balance between globalization and localization. Safety and technical standards set by ICAO will remain the global foundation, but local regulators such as China’s CAAC will introduce additional data and maintenance requirements, especially alongside the rise of COMAC. Lessors will need to navigate multiple overlapping regulatory regimes, increasing operational complexity and cost.

Overall, the next decade will be one of transformation—driven by technology, sustainability and geopolitics—all converging to reshape how the aviation industry flies, finances and fuels the future.