Oneworld Oneprize

CONCEPT PLAN

oneprize Leveraging Emission Trading Schemes for a Competitive Advantage

Oneprize Concept Plan

oneworld oneprize - 2 -

Preface This concept plan was written by Matthew Kronborg circa 2009.

At the time most airlines believed carbon pricing would only bring downside risks and costs. This document challenged that prevalent thinking by outlining an innovative opportunity for competitive advantage that carbon pricing would

provide. It was based on the best available data in the public domain at the time.

Key words Aviation, Airline, European Union Emissions Trading Scheme,

Sustainable Aviation Fuel, Energy, Prize, Mega-scale, Innovation, Commercial, Environment, Carbon Pricing, Climate Change, Solutions



Table of Contents Oneprize ........................................................................................5

Purpose .......................................................................................5 Mission ........................................................................................5 Summary of Key Benefits...............................................................6 Executive Summary ......................................................................7 Concept Summary ........................................................................7

Glossary .........................................................................................9 A Brief History of Aviation Prizes ...................................................... 10 Full Concept Outline ....................................................................... 11

Benefit: .................................................................................. 14 Cost:...................................................................................... 14 Value of the Cash Prize:............................................................ 15 Distribution of Oneprize strategy cost amongst Oneworld Members: 15 Voluntary cessation of Oneprize Strategy: ................................... 16

Leveraging the marketing potential of the Oneprize ......................... 16 The Psychology: Altruism and the Premium Oneworld Target Market17 Marketing Campaign: ............................................................... 18 Announcement of Oneprize Competition:..................................... 19 Marketing Slogan:.................................................................... 20

Financial Benefit ............................................................................ 20 Leveraging the intrinsic mechanism of the Oneprize Competition ....... 21

Oneprize Competition Conditions and Sustainability Criteria ................. 23 Triple Bottom Line Expectations of Bio Jet Product Proposal .............. 24

Economic:............................................................................... 24 Social:.................................................................................... 25 Environment: .......................................................................... 25 Other: .................................................................................... 26

Award Strategy.............................................................................. 26 Outline of the strategy for the awarding of the cash components of the Oneprize competition................................................................... 27

Oneprize Strategy Rollout Plan......................................................... 28 Phase 1: Applications Open .......................................................... 28 Phase Two: Winner Selection........................................................ 29 Phase Three: Implementation and Operation .................................. 29 Phase Four: Business as Usual ...................................................... 31

Initial Stakeholder Analysis ............................................................. 31 Oneworld Member Airlines: .......................................................... 32 The Supplier (Winner): ................................................................ 32 Sustainable Aviation Fuel Producers............................................... 34 Incumbent Conventional Jet Fuel Producers .................................... 35 Crude Oil Extracting Interests ....................................................... 35 Global ....................................................................................... 36



Risk Register ................................................................................. 37 Internal Risks ............................................................................. 37 External Risks ............................................................................ 38

Next Steps .................................................................................... 41 Appendices ................................................................................... 42

Aviation and our Environment: Key Background Facts ...................... 43 Carbon Intensity ......................................................................... 44 Emission Trading Schemes: Basic Theory ....................................... 45 Future carbon pricing schemes...................................................... 46 Other Key Quotes ....................................................................... 47 MEDIA RELEASE from the Sustainable Aviation Fuel Users Group ...... 55 Visioning the Sustainable Feedstock .............................................. 59 A Technical Overview of Jet Fuel (Jet A-1) ...................................... 60

Initial Financial Analysis .................................................................. 62

“A plan to support profit, people and the planet”



Oneprize

Purpose

In the future it is inevitable that the air transport industry will be covered by the carbon-pricing schemes that are emerging around the world. This carbon regulation, likely to be based around emissions trading mechanisms, will place a financial burden on both the airline members of the Oneworld Alliance and its competitors. However, this burden need not be a commercial threat, rather it provides the opportunity for a sustainable competitive advantage for the Oneworld Alliance that would increase shareholder value. Indeed, the first airlines that are able implement ways to continue operational capacity growth whilst simultaneously reducing exposure to this financial burden will garner an early mover advantage. This document outlines an innovative concept plan based on facts, realistic assumptions and credible forecasts for how the Oneworld Alliance and its members could work collaboratively to achieve this advantage whilst gaining wider long-term strategic benefits.

Mission

To leverage the European Union’s Emission Trading Scheme for a financial and reputational competitive advantage benefitting the Oneworld Alliance member airlines. This will be achieved principally by using this group’s immense jet-fuel purchasing power coupled with a prize mechanism to attract the exclusive rights to the price-parity production output of the first mega-scale economically, socially and environmentally superior Sustainable Aviation Fuel producer for a strategic multi-year period in a low cost and low risk manner. As an added benefit, in doing so the Oneworld Alliance will accelerate the creation of a global sustainable Aviation Fuel industry that will benefit the air transport industry, people and the planet.



Summary of Key Benefits Oneworld Alliance:

Financial • Reduction in carbon liability for the EU ETS of at least €206.77 million (worst case) over the period 2012-2017, for a capital investment (that will be fully recouped during that period) of €269 million. • Leverage the marketing potential of this strategy for financial benefit in the order of €75 million over the period 2009-2017.

Reputation • Reposition the premium Oneworld Alliance as the

global benchmark in market transformative sustainability and the first global airline alliance to achieve significant net carbon emission reductions beyond fuel efficiency gains or total capacity reductions.

Global:

Economic • Assist and accelerate the development of a Sustainable Aviation Fuel industry that is cost competitive with fossil oil, which will;

Social • Create a global net increase in jobs as well as

contribute to reducing the impact of climate change on global society, and allow a;

Environmental • Reduction in CO2-e emissions for the Oneworld

Alliance over the period 2012-2017 in the order of 15.3 million tonnes.



Executive Summary Envisage the Oneworld Alliance thinking into the future and establishing a revolutionary plan to leverage emerging emission trading schemes for a financial advantage in a way that will also benefit people and the planet. This could be achieved from mid-2012 when much of the global air transport industry will be directly included in the European Union’s Emission Trading Scheme (EU ETS), and potentially beyond that included in a global carbon-pricing mechanism. Initial financial analysis shows the concept plan set out here could reduce exposure to the EU ETS for the Oneworld Alliance by at least €206.77 million over the period 2012-2017 for capital investment (that will be fully recouped during that period) of €269 million. Additionally, it would establish a marketing advantage that could be leveraged for financial benefit in the order of €75 million over the longer period of 2009-2017.

Concept Summary

Step 1 Establish a large cash-prize incentive competition, valued at €250 million, for the first mega-volume drop-in Sustainable Aviation Fuel producer with a commitment by the Oneworld Alliance to purchase 100% of output for a strategic multi-year (approx 10 year) period.

This competition will be designed in such a way so as to assist to accelerate the development of a high integrity, economically, socially, and environmentally superior replacement for traditional jet fuel, and; that will focus market investment in Sustainable Aviation Fuel development towards supply chains that terminate at the Oneworld Alliance’s major hubs in the European Union. The announcement of such a major stimulus competition by the Oneworld Alliance will loudly demonstrate the Oneworld Alliance’s commitment to sustainability and its efforts to reduce the societal mega-risks of anthropogenic climate change. This will be used as a marketing competitive advantage to generate a financial benefit in the order of €75 million over the period 2009-2017. Much of this reputational benefit will be crystallised into revenue before the prize has even been awarded.



Step 2 The terms of the competition will provide an opportunity to contractually secure the Supplier to a fuel Off-take Agreement with an Exclusivity Clause that will remain until a peak threshold volume of ‘100% of the Oneworld Alliances ongoing jet fuel demand in excess of 2004-2006 historical requirements for European Operations’ is met (approx 6.3 gigalitres p.a. in 2016).

Under the EU ETS only certified biofuel is “zero rated”. Such biofuels have nil associated carbon liability.

The outcome of the Off-take Agreement with its Exclusivity Clause and resulting Sustainable Aviation Fuel supply will be a direct financial benefit for Oneworld Alliance member airlines that will have dramatically reduced liability under the EU ETS for the duration of the Off-take Agreement and a favourable ongoing market position to continue to receive such fuel supply in future.

This reduction in financial exposure to the EU ETS will benefit Oneworld customers as a portion of the savings may be passed on to them, making Oneworld airfares more competitive.

Also it will benefit the planet, as the Oneworld Alliance will have significantly reduced its carbon footprint for flights to, from and within the European Union, for the period 2012-2017 in the order of 15.3 million tonnes CO2-e.

“Climate change threatens all our goals for development and social progress. It is the one true existential threat to the planet.”

- Ban Ki-Moon, Secretary General of the United Nations



Glossary For ease of use this document contains Term words and thus must be read in conjunction with this

Glossary, where the definitions of these capitalised words can be found.

Oneworld refers to the Oneworld Management Company Ltd, which is the

Oneworld Alliance managing company based in Vancouver, Canada

Oneworld Alliance refers to the full collection of the full Oneworld member airlines Oneworld Member refers to a full airline member of the Oneworld Alliance whose

CEO sits on the board of the Oneworld Management Company Ltd

EU ETS refers to the European Union Greenhouse Gas Emission Trading Scheme that is set to include the aviation industry from mid-2012 according to Directive 2008/101/EC Of The European Parliament And The Councili

European Operations refer to all flights “arriving at and departing from (European) Community aerodromes” as these flights are included within the scope of the EU ETS according to clause 16 of Directive 2008/101/EC Of The European Parliament And The Council

Supplier refers to the Winner of the Oneprize Competition Winner refers to the winning applicant of the Oneprize Competition Parties refer to the Oneworld Alliance and the Winner Oneprize refers to the cash prize itself and its associated incentives Oneprize Competition refers to the competition component of the Oneprize Strategy

and its associated terms and conditions Oneprize Strategy refers to all related phases of the Oneprize Competition; before,

during and after as a single strategy Ratio refers to the ratio of ‘total forecast financial burden of the EU

ETS from 2012 to 2017 without the Oneprize Strategy’ between Oneworld Members. Calculation of the Ratio will be updated monthly from the date of Oneprize Strategy inception, with any rank changes in the Ratio Oneworld Member leader board to occur only once annually

Applicants refers to any entrants of the Oneprize Competition Exclusivity Clause refers to a clause in the Off-take Agreement between the Parties

that begins at the initial awarding of the Oneprize and concurrent signing of the Off-take Agreement and ends when a volume threshold of ‘100% of the Oneworld Alliances ongoing jet fuel demand in excess of 2004-2006 historical requirements for European Operations’ is met

Drop-In refers to any ASTM specification high performance jet fuel that has similar physical properties to (and is fully mixable with) Jet A-1 fuel, thus eliminating the need for the redesign of jet engines and fuel delivery systems

Sustainable Aviation Fuel (SAF)

refers to a jet fuel derived purely a from biomass-based feedstock and meeting sustainability criterion as assessed by a high integrity reputable third party such as the Round Table of Sustainable Biofuels. To be a true SAF it is not mixed with conventional fossil oil based jet fuel in any form of ‘blend’



A Brief History of Aviation Prizes A well designed prize that captures the imagination can inspire the kinds of efforts that lead to radical and sudden breakthroughs, largely because those pursuing the prize will collectively devote far more time, attention and money than is actually on offer. The glamour and prestige of winning also inspires dedication. And prizes that are open to all can inspire outside-the-box solutions. The original modern aviation prize was the Orteig Prize, which offered $25,000 in 1919 for the first non-stop flight between New York and Paris. At the time such a feat was deemed crazy and impossible. However, human and financial capital flocked in effort to claim the prize. As a result, only a few years later in 1927 it was won by Charles Lindbergh who in doing so inspired millions and laid the seeds for a global long-distance air transport industry.

Charles Lindberg with the Spirit of St. Louis after winning the Orteig prize in 1927

More recently the Ansari X Prize, from the X Prize Foundation, was created which led to “the first non-government organisation to launch a manned reusable spacecraft into space twice within two weeks”. It was won in 2004 by Burt Rutan’s SpaceShipOne. The small US$10 million cash prize attracted over $100 million into new technologies in pursuit of the prize and single handily has laid the foundation for a civilian commercial space industryii.

Burt Rutan with Space Ship One after winning the Ansari X Prize in 2004



Full Concept Outline Multiple sovereign governments are presently implementing or considering implementing, carbon pricing mechanisms that will add a cost burden to the business models of many organisations, including all international airlinesiii. The intention of such regulation, is of course, is to reduce net emissions economy-wide by driving innovative market-based solutions. The primary aim of the oneprize concept plan is to step up to this challenge positively and tactically encourage burden reducing solutions by leveraging the most far-reaching of the presently proposed carbon pricing mechanisms - the European Union’s Emission Trading Scheme (EU ETS). It is proposed that this emissions trading scheme will include the aviation sector from mid-2012. The inevitable implementation of additional national or global carbon pricing mechanisms would only serve to reinforce the foreseen benefits of this concept plan. This plan is designed so that any deferral or cancellation of the European Commission’s plans (to cover aviation within the EU ETS from mid-2012) would delay but not derail the success of this concept. It is known that presently, in 2009 the EU ETS will impact all current and proposed Oneworld Alliance member airlinesiv. This is a result of the EU ETS Aviation directive legislation which will require all airlines that “fly to, from and within the European Union” (i.e. all Oneworld members) to purchase annual emission allowances if they exceed annually reducing emission limits3. Additionally, there is proposed EU legislation that will drive an annual increase in the unit financial cost of these EU emission allowances. The EU ETS will encourage airline management to prioritise plans that lead to improvements in fuel efficiency and that drive the development of renewable energy solutions. In the case of aviation these are Drop-In economically, socially, and environmentally superior alternative jet fuels. The EU ETS will not create a catastrophic cost impact on the aviation industry but it will certainly provide strong a wakeup call.



Graphical overview of the European Union’s Emission Trading Scheme and its proposed

inclusion of the air transport industryv Many strategies are increasingly being employed by airlines to shave fuel-burn in order to reduce fuel costs and minimise expected future carbon liabilities however; these plans can only go so far whilst airline executive management’s attention is drawn to more pressing and more tangible short term issues. Commonly commercially viable strategies to reduce fuel burn and improve fuel efficiency include: modernising aircraft fleets, reducing unnecessary aircraft weight, reducing discretionary fuel loading, optimising aircraft ground operations, optimizing flight climb/cruise/descent profiles, optimising routes and washing engines/aircraft. These low hanging fruit options can reduce emissions intensity but cannot resolve the underlying emissions issue. In fact, trends show that these options cannot keep pace with the growing net emissions profile of aviation let alone deliver a comprehensive zero net emissions solution. The option that is increasingly being dawned-upon by the airline industry, is that to fully reduce exposure to carbon pricing schemes they must operate their airlines using ‘zero rated’ Sustainable Aviation Fuel. This is the only way to eliminate carbon compliance costs short of reducing flight operations. Estimates suggest it will take between five and twenty years to develop mega-volume price-parity ‘tipping point’ Sustainable Aviation Fuel solutions if development continues at the present meandering rate. The majority of expert predictions suggest such solutions are more likely to occur towards the further end of this timeframe. This is largely due to relatively limited private and government effort on the matter. Small volume and higher price SAF production may occur sooner. Some high-profile experts believe that aviation will always be ‘outbid’ for advanced biofuels by ground users (such as cars and trucking) unless the aviation industry can convincingly communicate the techno-economic case for why its should have preferential access to advanced biofuels through public policy landscape changes over ground-based consumers. Ground-based consumers users have access to numerous other renewable technologies (such as rechargeable electric battery, solar PV and hydrogen) to fulfil



their sustainable energy needs but thanks to the laws of physics, high-speed long-distance air transport will always require a high-energy-density liquid transport fuel. This ‘out bidding’ theory accentuates the risk that from mid-2012 when the EU ETS includes aviation, a major new financial burden will be placed on airlines with little likelihood of the arrival of a gigalitre volume price-parity Sustainable Aviation Fuel saving grace. It is worth elaborating that the most significant fuel efficiency strategy that airlines currently use to reduce their exposure to carbon compliance costs is to reduce their aircraft fleet age through the purchase of new aircraft and engines. From past experience, each generation of new aircraft and engines are always marginally (~3-10%) more fuel-efficient due to improved design. This strategy is low risk and provides numerous other co-benefits but it does have a significant financial cost associated. For example, Oneworld Alliance member airlines currently have more than US$75 billion worth of aircraft on ordervi. It is therefore shown that consideration should be given to the oneprize concept, which has comparatively low risk for comparatively very low cost to achieve similar environmental performance outcomes. The financial analysis section of this concept plan concludes that, assuming present year-on-year CO2-e emission and carbon pricing trends continue, the carbon compliance cost to Oneworld Alliance member airlines will be approximately €624.67 million over the period 2012-2017 for the EU ETS alone (assumes a EUA price of €10 per tonne), a total cost that could be slashed to €417.90 million if the Oneworld Alliance adopts this concept. It is worth noting that based on current trends (using the minimal public data available used to build this concept plan of the Oneworld Alliance members airlines) that British Airways will by far have the largest liability under the EU ETS. Due to its extremely large size, strength and premium target market the Oneworld Alliance is in a unique position to be able to control, focus, and assist in accelerating the development of a gigalitre scale price-parity Sustainable Aviation Fuel solution to within a ten year timeframe. The Oneworld Alliance can work collectively to leverage emissions trading schemes for strong first mover competitive advantage with minimal upfront costs. The Oneworld Alliance can do this though the use of a ‘cash prize’ incentive mechanism. The Oneworld prize competition shall be called the oneprize. To leverage financial benefit from the Oneprize the Winner will be contractually obliged to provide Sustainable Aviation Fuel exclusively to the Oneworld Alliance until a volume threshold of ’100% of the Oneworld Alliances annual jet fuel demand in excess of 2004-2006 historical requirements for European Operations’ is met. It is expected that it will take several years for the Supplier to scale up production to meet this volume hurdle, which for instance in 2016 will have reached 6.3 gigalitres per annum. By design at this point the Sustainable Aviation Fuel produced in excess to the Oneworld Alliance’s requirements will be permitted to be



released onto the open market where it will become available to all competitors, priced accordingly, and the Exclusivity Clause shall end. The multi-hundred million dollar cost savings to Oneworld Alliance members that collectively arise from reduced annual operating expenses for EU emissions allowances during the scaling-up period by the Supplier is the core financial driver of this plan. Note: The key term ‘100% of the Oneworld Alliance’s ongoing jet fuel demand in excess of 2004-2006 historical requirements for European Operations’ is used as it is only emissions from fuel above the 2004-2006 average per airline that is exposed to the financial burden of the EU ETS.

Benefit: As it has never occurred previously, an accurate forecast of the scaling-up time period (from 0% to ‘100% of the Oneworld Alliances ongoing jet fuel demand in excess of 2004-2006 historical requirements for European Operations’) of the Suppliers fuel production is difficult, however, it is intuitively estimated this period would conservatively be in the order of five years. Accordingly, the basic financial analysis conducted here shows that over this conservative period the Oneworld Alliance members would collectively save €206.77 million. If the scaling up period is longer than five years, which is highly probably, even greater savings would be realised. Additionally, it is estimated that the marketing potential of the Oneprize could be leveraged for financial benefit of at least €75 million for the Oneworld Alliance. Additionally, it would help to demonstrate the aviation industry’s claim that it is committed to reduce its climate change impact and transfer community pressure on this topic from itself to incumbent fuel suppliers.

Cost: The cash-prize incentive is the primary expense of the business plan. However, unlike traditional upfront cash prizes the delivery of the Oneprize cash is uniquely structured to manage risk and cash flow implications. Firstly, an upfront lump cash payment of only €75 million (of the €250 million total) will be awarded upon signing the Off-take Agreement. Secondly, the remainder of the Oneprize will be distributed to the Winner such that ongoing tranches will not be awarded until actual EU emission allowance savings are realised (Also see section: Phase 3) Implementation & operation). This arrangement is designed to be fair whilst reducing risk to both parties (i.e. this financial grant is guaranteed to the Supplier in addition to a firm Off-take Agreement). The total cost of the Oneprize Strategy is estimated in the order of €268.6 million for the Oneworld Alliance. Practically, the Supplier will see it as a €75 million grant plus a production subsidy that lasts for several years. Prize indemnity insurance, such as so called hole-in-one insurance, could be purchased to eliminate the need for the Oneworld airlines to make a



financial provision for cash to be at hand for the prize to be given at any moment.

Value of the Cash Prize: The overall incentive to the Winner of the Oneprize Competition will be €250 million – the largest ever cash prize of its type.

This size is driven by multiple considerations:

Be it too small and it will not gain the public’s attention reducing its marketing potential; nor attract the desired financial and intellectual resources to the Sustainable Aviation Fuel field; nor be sufficient for the Supplier to accept an Exclusivity Clause in the price-parity Off-take Agreement.

Be it too large and it will exceed the financial saving made from the reduction of EU emission allowance requirements.

A key to making the Oneprize competition (with its restrictive Exclusivity Clause) attractive to potential applicants is to find a cash quantity and distribution timeline that balances the potential for lost revenue of the Supplier (as they will receive a fuel price (i.e. price parity to conventional jet fuel) which is slightly lower than the likely market rate (i.e. jet fuel + carbon price margin)) with the financial benefit they will gain as a result of a reduced payback period and firm sales. For reference, literature reviewed in the development of this concept has suggested that the development of a gigalitre-scale Sustainable Aviation Fuel supply, especially one that would reach the Oneprize Strategy’s strict triple-bottom-line driven expectations, could cost up to US$20 billion to reach the market.

The upfront portion of the cash prize package should ideally be proportionate to the financial benefit gained by the Oneworld Alliance from the marketing of the Oneprize Strategy over the early period. The benefit is estimated to be in the order of €75 million for the Oneworld Alliance.

Distribution of Oneprize strategy cost amongst Oneworld Members: The financial cost of the Oneprize Strategy will be split fairly and equitably among the Oneworld member airlines according to a ratio of ‘total forecast financial burden of the EU ETS 2012-2017 without the Oneprize Strategy’, known as the Ratio. The average total Oneprize Strategy cost for each Oneworld Member is approximately €24.8 million with the majority of that payable in tranches over time (Also see section: Phase 3) Implementation & operation). Similarly, all direct financial benefits of the Oneprize Strategy will be distributed according to the Ratio. This will give all Oneworld Members an equal cost/benefit ratio. This method also allows for the addition/subtraction of Oneworld Members in a fair and equitable manner.



Voluntary cessation of Oneprize Strategy: If unfavourable global market conditions arise such that the Oneprize Strategy can no longer possibly achieve its mission, or the EU emissions allowance price drops substantially, then as a last resort the Oneworld Alliance may withdraw the Oneprize Strategy and its associated competition from public offer. Though unlikely, if this occurs the only associated costs to the Oneworld Alliance will be for the minimal cost of the Oneprize Strategy office administration over the period that the Oneprize application process was open at approximately €233,000 per Oneworld Member airline per annum (Also see section: Phase 1) Applications open). If during the period that the Exclusivity Clause is in effect it is found that the broader market conditions force the trading price of conventional jet fuel so low as to force the bankrupting of the Supplier because its biofuel product has become severely uncompetitive then on agreement between the Parties the Exclusivity Clause will cease to exist and resultantly the Oneworld Alliance’s commitment to the purchase of the Suppliers fuel will be dissolved. In this case the supplier will be obliged to pay back the original €75million as if it were a nil-interest bank loan. It should be noted that although a ‘voluntary cessation of the Oneprize’ clause will diminish risk to the Oneworld Alliance it will also increase the risk to potential suppliers and therefore reduce its ability to attract resources to the SAF Industry.

“No other industry is as united, responsible or ambitious”

- Giovanni Bisignani, IATA Director General and

CEO talking about the air transport industry



Leveraging the marketing potential of the Oneprize Preliminary estimates suggest that the Oneworld Alliance’s financial benefit to be derived from marketing the Oneprize competition is in the order of €75 million EBIT for the period 2009-2017 (refer to the Financial Model for further information). This equates to an average benefit of approximately €1 million per Oneworld Member per year over that period. This marketing derived financial benefit varies depending on the size of the airline, altruism levels, awareness of climate change among potential customers in markets served, number of customers and other factors, however, with relevant market research not available at this initial stage only the top-down size of each member airline has been taken into consideration to determine the estimated financial benefit of the marketing potential of the Oneprize. The strategy of separating the potential marketing benefits away from the other Oneprize Strategy mechanisms will encourage each Oneworld Member to conduct its own marketing to leverage their own financial benefit from the Oneprize’s reputational potential. An societal benefit of the Oneprize Strategy is that it will encourage Oneworld airline members to raise awareness of climate change in their own markets as they seek to leverage an advantage off this awareness.

The Psychology: Altruism and the Premium Oneworld Target Market The Oneworld Alliance offers the world’s foremost premium airline services to those in the world’s most highly educated, affluent, 30 year old plus market segment. This target demographic aligns with the demographic most likely to positively respond to the Oneprize marketing campaign. A widely known theory in psychology called Maslow’s hierarchy of needs, created by Abraham Maslow in 1943vii, outlines ”what man seeks to achieve with themselves” according to a basic ascending pyramidal matrix. Beginning from the base level of the pyramid it theorises that a person typically advances up to the next category once most, if not all conditions for that life category are met. The Oneprize campaign stimulates Oneworld premium customer demand

Maslow’s Hierarchy of Human Needsviii



Accordingly, research indicates that people who have the means and desire to acquire luxury Oneworld premium airline services generally lead comfortable lives and therefore fit into the uppermost categories of the pyramid, where “in a world of plenty, man’s struggle is not for survival but for meaning”. It follows that this audience will have the highest altruistic commitment to reduce its climate change impact and will therefore be most likely to be moved to favourably consider the Oneworld Alliance thanks to the Oneprize strategy when choosing their airline. Thus, the target market of Oneworld is that which is most in synergy with those likely to relate to the Oneprize vision, which will have the influence of amplifying the potential of the marketing campaign and consequentially lead to a direct improvement in Oneworld member airline ticket sales. A similar appreciation is predicted amongst for Oneworld member airline shareholders who would boost share prices based on a consequential positive shift in sentiment.

Marketing Campaign: The advertising blitz accompanying the Oneprize will seek to leverage the target demographics underlying sense of altruism around the climate change issue to improve ‘positive feeling’ market positioning and inturn improve Oneworld revenue generation. The favourable take-up rates for the Qantas carbon offset program demonstrates hard evidence that there is an underlying sense of awareness and altruism in relation to climate change amongst Oneworld customers and latent demand for carbon neutral airline services.



Announcement of Oneprize Competition:

Proposed Initial Media Release

MEDIA RELEASE Oneworld airline alliance announces immense €250 million dollar prize competition for the first mega-scale producer of sustainable aviation fuel. New York; July 20, 2010 Showing forward thinking vision and a commitment to sustainability the global oneworld airline alliance today announced the world’s largest ever innovation cash prize competition. Called the oneprize, it aims to accelerate the development of an economically, socially and environmentally superior alternative to conventional fossil-based jet fuel. “The worlds air transport industry is at the forefront of corporate responsibility and whilst it only produces 3% of the worlds man made emissions we at oneworld realise a step change is required in the source of our energy to strongly power us into the future” said the oneworld CEO. “Due to the laws of physics the aviation industry is unable to commercially adopt all but one of the renewable energy solutions available to ground transport. We agree with the industry consensus that in the future airliners will be powered by the only available renewable option, a drop-in liquid transport fuel – Advanced sustainable biofuel. We recognise that the issue of climate change is urgent so we hope that a €250million incentive package with a commitment to purchase the winner’s production volume will be enough to see a solution in the near future.” The conditions of the oneprize are stringent in their future focussed high integrity triple-bottom-line expectations of the winning supplier but it is clear that there is indeed €250 million package waiting to be claimed. More details at http://www.oneworld.com/oneprize



Marketing Slogan:

“oneworld oneprize” International, simple, inclusive, inquisitive, creative and repetitive

“This renaissance [in prizes over the past 5 years] is driven by the simple fact that prizes work – almost by definition, since they pay only for desired results not noble failures. The power of prizes to stimulate innovation comes from their ability to mobilise resources, intellectual as well as financial, and to draw attention, which can influence the perceptions and actions of potential solvers or society at large.” - Jonathan Bays and Paul Jansen, McKinsey & Company report ‘Prizes: a winning strategy for innovation’, July 2009



Financial Benefit

Leveraging the intrinsic mechanism of the Oneprize Competition

The key mechanism that makes this concept financially beneficial is that the Winner is contracted to exclusively supply the fuel to Oneworld member airlines until it meets a volume threshold of ‘100% of the Oneworld Alliances ongoing jet fuel demand in excess of 2004-2006 historical requirements for European Operations’. This threshold will be in the order of 3.3 Gigalitres in 2012 rising via a straight line to 6.2 Gigalitres by 2016. This Exclusivity Clause is designed to benefit both Parties (Refer to section: Initial Stakeholder Analysis for detail). A contractual obligation will result in a fuel price for the Parties that has a foundation built on price-parity with the average conventional jet fuel price for that year. If interested suppliers cannot meet this price they will not apply for the prize. During initial supply rollout the fuel will be inserted into the energy supply chain of the Oneworld member airline that is forecast to otherwise pay the highest average fuel price for the year inclusive of any EU ETS requirement for emission allowances. In doing so this Oneworld member will reduce their EU ETS carbon liability in that year. The benefit occurs, as under the EU ETS legislation, certified biofuel is “zero rated” with nil associated carbon liability annually. To work effectively this Oneworld member will need to forecast the total average fuel price they expect to pay were it not for the Oneprize Strategy, for the entirety of the same one-year. This is possible as it aligns with legacy airline fuel procurement practices involving annual tenders. This forecast price will provide the Supplier with a commitment to purchase at that price, enabling them to securely develop a fuel supply chain for that year. Following initial rollout, a settling up mechanism that requires the input of accurate forecast annual average fuel price (audited by an agreed third party) will keep price paid to the Supplier fair. The mechanism will inherently encourage accurate forecasts with the actual historical average price for jet fuel used to settle the books at the end of the year. The mechanism will be designed to financially penalise either Party equally (say 1%) for biased or inaccurate data at the conclusion of the year. The Oneworld member with the next highest forecast annual jet fuel cost will be the next in line to receive the rollout of supply of the fuel and so on until a volume threshold is reached whereby ‘100% of the Oneworld Alliances jet fuel demand in excess of 2004-2006 historical requirements for European Operations’ has been met.



As a result, from the first time an Oneworld aircraft flies that would require the purchase of EU emission allowances, were it not using Sustainable Aviation Fuel, each and every Oneworld Member will essentially receive an indirect discount on their year-on-year fuel cost though a spread reduction in EU ETS emission allowance requirements. Therefore, each Oneworld member will have a fuel cost competitive advantage as a result of this mechanism.

Savings can be significant for Oneworld Members during the

Oneprize Strategy

This financial benefit to Oneworld Members through a spread reduction in EU ETS carbon liability will only increase over the duration of the Exclusivity Clause period as more SAF supply comes online until it reaches zero carbon liability. From the end point of the Exclusivity Clause the Supplier will be free to trade with Oneworld competitors. However, by this time SAF supply chain infrastructure installed by the Supplier terminating at the Oneworld Alliance’s European hubs for the purposes of the Oneprize Strategy will likely make it financially preferable to continue a relationship with the Oneworld Alliance through the standard fuel tender processes. Additionally, Oneworld members will now have a favourable balance of power as they will be free to purchase any jet fuel but have greater fuel supply options available than other airlines.



By this time, several years from now, the Oneprize Strategy will have accelerated and facilitated the creation of an economically, socially and environmentally superior alternative jet fuel industry, plus it will have delivered very significant returns for all Oneworld Members.

“The case for corporate sustainability is both clear and compelling. All businesses owe a duty to their shareholders to direct their efforts towards the long-term creation of value. This goal can only be achieved within the context of a healthy environment, a prosperous economy and a stable society” - Leigh Clifford, Qantas Airways Chairman, Qantas Sustainability Report 2008, p4



Oneprize Competition Conditions and

Sustainability Criteria Any applicant to the Oneprize Competition must meet the following conditions to be eligible. The conditions set the bar heroically high so that potential Suppliers aim for fully sustainable; economically valuable, socially beneficial, and environmentally favourable outcomes from the outset. These conditions are based on the recommendations of the reputable Sustainable Aviation Fuels User Group (SAFUG) pledge (See Appendices). In addition to these sustainability criteria any applicant must also be able to meet any amended criteria of the SAFUG pledge and any EU ETS ‘zero rating’ biofuels criteria.

Triple Bottom Line Expectations of Bio Jet Product Proposal

Economic:

The fuel product should be similar to all the physical properties of Jet A-1 (these physical properties are outlined in the Appendix).

The fuel product must meet all civil aviation technical specifications (such as ASTM D1655/D6615) or any other standards as set by Oneworld.

The fuel’s energy/volume ratio should be greater than a 5% margin below conventional Jet A-1 which, discounting temperature variation is 118,700BTU/gallon. The price Oneworld is willing to pay per litre will be benchmarked against Jet A-1 and will be proportionally varied to reflect deviation from this ratio.

The final local 'in-wing' price of the fuel should be equal or less than the ‘in-wing' price of Jet A-1 at the same location as the Oneworld Off-take Agreement is based on parity to this price.



Social:

The fuel must not use an organic feedstock source that could be otherwise used for human consumption, nor may it displace land that could otherwise be used for food crop production.

The fuel production should not negatively impact on local or global human populations.

Ideally the feedstock should be able to be grown or sourced from any country so that all peoples may embrace, and benefit from, a new clean & cheap energy source; and also because the localising of the production of the fuel will improve the energy security of nations.

Environment:

The proposed feedstock growing cycle must only use atmospheric borne CO2, nutrients, gases, and/or man-made waste products (i.e. not fed from material/minerals/gases directly unlocked from the old growth forests or the ground either directly or indirectly)

The feedstock must be grown with non-escape mechanisms built in to mitigate the biosecurity risk of invasive flora or any prolific genetically modified super species into the natural environment that could result in irreversible damage. For instance such a fail safety mechanism could require the addition of a hyper-unnatural level of sea salt or require some other mineral or mechanism (i.e. heat/cool/ultraviolet light) to enable germination.

Any biomass oil extraction process must not use chemical solvents. There are currently a number of biomass oil extraction processes available; however, the cheapest and unfortunately most environmentally damaging type uses chemical solvents, for example Benzene; a well known carcinogen.

The feedstock should preferably be grown in non-arable arid (desert) regions of the world so as not to displace food crops or natural carbon sinks. The feedstock ideally should be grown on infertile land that is certified to have been previously destroyed by poor farming practices in preference to the use of a pristine desert.

Overall the production of the fuel must show at minimum 95% lifecycle reduction of greenhouse gas emissions in comparison to conventional jet fuel; plus ideally assist in reductions in deforestation, pollution and the rate of biodegradation.



Other:

The production method must meet the above triple-bottom line criteria, the SAFUG pledge and in certain cases other conditions as specified by Oneworld Alliance on application.

Exclusivity Clause- The Winner will undertake to supply 100% of their fuel production volume exclusively to Oneworld Members ‘into wing’ just-in-time at major Oneworld hubs located within the European Union until a volume threshold is reached whereby ‘100% of the Oneworld Alliances ongoing jet fuel demand in excess of 2004-2006 historical requirements for European Operations’ is met. Once this volume threshold is met the Winner is released from all Oneprize Competition jet fuel supply commitments. The exact forecast magnitude of this volume is beyond the scope of this initial concept review.

To provide value for both Parties an inbuilt contractual mechanism will ensure a fair fuel price is paid based on average annual conventional jet fuel price forecasts with a ‘settling up’ action occurring at the end of each year to ensure the price paid was the actual average fuel price for that year plus the Oneprize subsidy component.

Some high level fuel price forecasts and other data will be needed to be communicated between the Oneworld Alliance and the Winner to maintain the fair and equitable fuel pricing. The transparent communication will be audited by an agreed third party, e.g. Ernst & Young, to adjudicate this relationship if needed.

To provide a check and balance mechanism that is equitable to both the Winner and the Oneworld Alliance the Oneprize Competition will be judged by world renowned experts in the fields of Economic, Social, and Environmental Science. This panel may disqualify the winner at anytime if the winner fails the annual sustainability audit required. In this case the winner will be required to repay the €75 million initial prize.

“We realise that climate change is perhaps the biggest long-term challenge we face. It is important for the public to understand that the atmosphere has no preferences whether emissions come from aviation or agriculture, from China or the UK. But it does matter that cuts in those emissions are achieved in the most economically sensible manner. This message is often lost in the emotional headlines around the issue.” - Martin Broughton, British Airways Chairman, British Airways 2007/2008 Annual Report, p6



Award Strategy Outline of the strategy for the awarding of the cash

components of the Oneprize competition

Component 1 €75 million cheque presented to the Winner at the Oneprize award ceremony for the purpose of leveraging news media to create a major public relations event.

Component 2 In addition of the purchase price of the fuel itself, €1 million will be awarded to the Winner each time €2 million is saved by a Oneworld Member from negating the need to acquire EU emission allowances as a direct result of the supplied Sustainable Aviation Fuel product until the further amount of €175 million is awarded.

Total prize package €250 million Therefore, fundamentally the supplier will see a €75 million up-front cash prize plus an amount similar to a subsidy mechanism paid on supply until the full value of the cash prize has be awarded. This reward strategy is employed to secure the Winner to the Exclusivity Clause and to improve the cash flow implications of the Oneprize Strategy for Oneworld Members. The process will be fully audited by an agreed third party (reputable accountant) to ensure fairness and transparency between Oneworld and the Winner. “The properly structured prize literally creates the opportunity for almost, what I call, off-balance-sheet risk taking; where a company or government agency or individual can put up an audacious goal and, if it’s won, amazing. They’re a hero. And if it’s not won, it’s no skin off their nose, so to speak” - Peter Diamandis, Chairman and CEO of the X Prize Foundation, July 2009



Oneprize Strategy Rollout Plan

The Oneprize Strategy will consist of 4 main phases: Phase 1: Applications open Phase 2: Winner selection Phase 3: Implementation and operation Phase 4: Business as usual

Phase 1: Applications Open An office for the administration of the Oneprize Strategy will be established at the Oneworld Alliance headquarters in Vancouver, Canada. Its operation will be funded equally by all Oneworld Members. Operating costs for this period are estimated to be €2.32 million per annum. The Head of the Oneprize Strategy will report directly to the CEO of the Oneworld Alliance. For resource flexibility the Oneprize Strategy office will primarily be staffed by Oneworld Member employees on secondment. The purpose of the office during the period will be to thoroughly evaluate and review all applications submitted, to promote the initiative to the community and to liaise with industry to encourage applications and attract Sustainable Aviation Fuel development. All proposals will be assessed against the sustainability criteria as well as typical jet fuel procurement considerations.



Phase Two: Winner Selection If an application passes ‘Phase One: Applications Open’ it will be elevated to the ‘Phase 2: Winner Selection’ for review by the judging panel experts. The judging panel will principally consist of a select group of reputable experts in their respective fields of economic, social, and environmental science brought together solely for the purpose of the review of an outstanding Oneprize application. They will review the application individually and then vote Yes/No to approving the applicant as the Winner of the Oneprize Competition. It will be a high-hurdle consensus vote. The judging panel will consist of two world renown representatives of economic science (for example Paul Krugman, Jeffrey Sachs, two from social science (for example Kofi Annan), two from environmental science (for example Al Gore, Tim Flannery), a representative of the world youth (for example the President of the U.N. World Youth Association), the Oneprize Strategy creator as a technical advisor, and the Oneworld CEO who will have veto power. The purpose of the judging panel is to provide a check and balance mechanism to the Oneprize Strategy selection process, protecting its original high-integrity mission of securing and supporting only a fully sustainable; economically, socially, and environmentally superior Sustainable Aviation Fuel product. This is vital as it is likely that the Winner’s product will go on to become a foundation product of the Sustainable Aviation Fuel industry and a global benchmark against which all other such products are judged. Additionally the judging panel experts will add significant marketing potential which can be turned into financial benefit whilst mitigating reputation risk and community perception challenges. Once a favourable review by the judging panel is complete the application will be submitted to the CEOs of all Oneworld Members for their ratification. The applicant will be kept up to date throughout this process during which time the negotiation of the full terms of the Off-take Agreement will be concurrently discussed. Following a successful outcome the applicant will be notified and publicly announced as the Winner at the Oneprize award ceremony.

Phase Three: Implementation and Operation When a Winner is chosen the structure and purpose of the Oneprize Strategy Office will transform to focus on the management and accounting of the relationship with the Supplier and the high level accounting of the Oneprize Strategy overall. At the Oneprize award ceremony a cheque for Component 1 (€75 million) of the €250 million prize package will be presented and the Off-take Agreement will be signed by the Parties. This historic award ceremony will provide the Winner (now known as the Supplier) and the Oneworld Alliance with global recognition and resulting positive marketing and political outcomes.



The Exclusivity Clause of the contract will naturally provide a stimulus incentive for the Supplier to ramp-up production as rapidly as possible. Tranches of the prize will be awarded to the Supplier in instalments of €1 million each time €2 million is saved by member airlines from negating the need for the purchase of EU emission allowances as a result of the ‘zero rated’ SAF. The benefit of the value of the second half (€1 million) of the money saved on each tranche will be divided according to the Ratio amongst all Oneworld Members. Structuring the prize in this way means that there is no issue or disincentive for Oneworld members to stall or slow production scale-up. To provide for the addition and/or subtraction of Oneworld Members certain terms will be needed to allow for this to be done in a fair and equitable manner. Therefore, if a new Member joins the Oneworld Alliance they will be required to join into the Oneprize Strategy by contributing towards the Oneprize according to a revised Ratio, which in turn allows them to receive the beneficial outcomes of the Oneprize Strategy. If an Oneworld Member quits the Oneworld Alliance their portion of the Oneprize award according to the Ratio will be withdrawn. The terms of the Oneprize Competition will permit the total cash pool to reduce by an equal amount in this circumstance.



Phase Four: Business as Usual After the expiry of the Off-take Agreement the Oneworld Alliance will cease to have a formal contractual relationship with the Winner (Supplier). At this point all Parties may implement negotiated fuel supply cutover with any supplier/purchaser of their choosing. The Oneprize Strategy will have achieved its mission and the associated significant commercial benefit to the Oneworld Alliance.

“A prize is a familiar and easily understood concept that has a long history

of inspiring beneficial change”

- Jonathan Bays and Paul Jansen, McKinsey & Company report ‘Prizes: a winning strategy for innovation’, July 2009



Initial Stakeholder Analysis

Predicted perspectives of the major stakeholders on the Oneprize Strategy

Oneworld Member Airlines: Perspective: The Oneprize Strategy will significantly benefit all Oneworld Members as it will reduce the cost of jet fuel for European Operations (key financial advantage) compared to competitors and create a strong history-making reputation-building opportunity (key marketing advantage). The Oneprize Strategy will provide a sustainable competitive advantage from the point of its announcement. Long term, the Oneprize competition focuses Sustainable Aviation Fuel value chains towards the Oneworld Alliance’s European hubs that will provide benefits beyond the conclusion of the Oneprize.

The Supplier (Winner): Perspective: The Oneprize Strategy shall benefit the Winning supplier in many ways:

A firm demand multi-year Off-take Agreement for 100% of production that will be signed prior to breaking ground strongly improves the financial viability of the project. This takes out one of the major variables of the business case that will be seen very favourably by project financiers as demand and revenue can be accurately forecast.

Receiving a large cash tranche upfront prior to breaking ground for project construction will also be seen favourably by financiers and will reduce the amount of capital that will be needed to fund the project.

The Oneprize will attract resources, both intellectual and financial towards the Sustainable Aviation Fuel industry that will assist in rapidly reducing costs.

The Oneprize provides clear project goals for the Winner to work towards, in turn reducing the risks involved with pioneering a product for an untried and untested market.

The Oneprize clarifies the overall industry demand for Sustainable Aviation Fuel, reducing project risk.

It is likely that the Winner’s product will go on to become a foundation product of the Sustainable Aviation Fuel industry and a global benchmark against which all other such products are judged,



allowing it to command a price premium after the conclusion of Oneprize.

The break-even point for the Supplier improves as a result of Oneprize

Airlines will not adopt an alternative jet fuel unless the fuel cost per litre is at parity with conventional jet fuel. However, if the physical properties of the fuel product improve cost savings in another way, i.e. has a 5% higher energy density or through better engine lubrication properties which inturn reduce overall engine maintenance costs, airlines will be willing to pay more per litre. Equally, if the physical properties the fuel are worse and increase costs, i.e. worse lubrication properties increasing overall engine maintenance costs, the airlines will pay less. Indicative financial modelling shows that the unique structure of the Oneprize with its Exclusivity Clause will be favourable to the Supplier in the short to medium term and have minimal adverse effect on what would have been the organisation’s long-term revenue forecasts were it willing to accept higher risk associated with un-contracted demand. Overall, therefore, quantified and qualified factors make the Oneprize attractive to the Supplier in the short, medium and long-term.



The Oneprize’s one-way Exclusivity Clause will not adversely affect the long-term revenue of the Supplier

Sustainable Aviation Fuel Producers Perspective: The Oneprize Strategy formalises the requirement for minimum sustainability criteria for Sustainable Aviation Fuels that has previously only been suggested by the Sustainable Aviation Fuels User Group (SAFUG). As a result, it is expected that Sustainable Aviation Fuel development efforts will be aimed at creating products that meet these criteria rather than stop-gap efforts such as those fuel products that use first generation biofuel feedstock types (such as corn, canola and other food crops). It is predicted that if a small Sustainable Aviation Fuel producer develops a fuel system that can meet the stringent Oneprize conditions, this company would likely sell the Intellectual Property to an incumbent multinational conventional jet fuel producer that would have the resources to develop the project in a shorter period of time. The Oneprize Strategy will only accept one Winner, which will give that organisation a large competitive benefit and likely set that organisation’s product to be a global benchmark. However, it will also provide the overall emerging Sustainable Aviation Fuel industry with credibility, which will assist with its advancement. Therefore, the Oneprize Strategy is beneficial for the advanced biofuel industry and it is expected it will have their strong endorsement.



Incumbent Conventional Jet Fuel Producers Perspective: It would be assumed that the largest incumbent interests in this field would ruthlessly act to protect ‘their’ market; however, lately many have apparently begun to rethink their long-term strategies after realising that without transitioning away from fossil fuels their future is finite. For example in recent years two Super Majors (Shell and BP) have both created large R&D departments investigating biofuels. Provided that shareholders and customers demand biofuel and the financials stack up, they will continue to fund the development of these types of fuel. However, these companies are in a strategically difficult place; they want to be the biofuel market leader to leverage the first mover advantage, yet they want to do so without cannibalising demand for their more profitable incumbent products. The Oneprize will assist to accelerate these organisations through this bottleneck, as it is this genre of companies that will be most competitive for the Oneprize. This is a result of their established market dominance, that when coupled with the right product would likely put them in strong contention to become the Winner.

Crude Oil Extracting Interests Perspective: The creation of the Oneprize will be seen as an accelerated threat to the market demand of conventional crude oil, and therefore may be interpreted as a threat to traditional crude oil producing companies and nations. Consequently, it is to be expected that these groups may try to undermine, lobby and campaign to protect ‘their’ market. On the flipside, the sustainability criteria pursued by the framework of the Oneprize Strategy favour production to occur in environmentally damaged arid regions. Thus, many crude oil extracting nations, particularly in the Middle East, could embrace the opportunity to diversify into the new advanced biofuel energy market.



Global Perspective: The Oneprize Strategy shall benefit the world in many ways. By accelerating the development of a viable Sustainable Aviation Fuel industry, and by contributing to the effectiveness of the European Union’s Emission Trading Scheme’s core purpose - to reduce the impact of climate change. The core global benefits can be categorised along triple-bottom-line considerations-

Economic: The Oneprize Strategy shall assist in establishing a viable Sustainable Aviation Fuel industry. It shall provide a market changing catalyst for the mega-scale commercial implementation of advanced biofuels for aviation. It shall accelerate globalisation by reducing the cost burden of inevitable carbon pricing on world transport and trade.

Social: The Oneprize Strategy shall assist to establish a new market and in turn create new jobs. The UN IPCC has shown that there will be a global net increase in jobs as a result of tackling climate change. The Oneprize sustainability criteria encourages the selection of a feedstock that shall be able to be grown in most of the worlds regions; most efficiently in sparsely populated areas with low labour costs, which will assist to spread and lift overall wealth per capita globally.

Environment: The Oneprize shall create a catalyst for the large scale commercial implementation and market adoption of advanced biofuels for aviation. This will permit more carbon to be left permanently sequestered in the earth and out of the atmospheric carbon-cycle.

“We have put corporate responsibility at the centre of our business priorities and our ambition is to be a leader in this field. Our industry’s most pressing corporate responsibility is to reduce the carbon emissions from its operations.” - Willie Walsh, CEO, British Airways 2007/2008 Annual Report



Risk Register A list of key risks and associated mitigation strategies

At this initial stage there are no ‘show stoppers’, although further evaluation is needed for verification.

Internal Risks

The financial benefits outlined in this concept plan are ‘in the ballpark’ with further data and analysis needed for accurate quantification.

Analysis needs to be completed to forecast required fuel volumes to meet threshold.

Strengthening of specific aspects of the financial reporting bond (relating to fuel volume consumption only) between Oneworld Members will be required as the Oneprize Strategy is adopted. These bonds may need to be monitored and audited by an agreed third party, accountant, to ensure transparency. This will need to be done carefully so as not to break any anti-competitive or anti-trust laws of any regulatory body.

After wide consultation it may be decided that incremental development ‘stage gate’ prizes may be more effective than a single large prize with purchase subsidies. If this is the case the purpose and mission will remain but other parts of the Oneprize Strategy may need to be adjusted slightly.

On initial inspection it is believed that some Oneworld Members may not have the appetite to adopt the Oneprize Strategy despite financial benefits due to relationships with governments of oil producing nations (e.g. Royal Jordanian). The Oneprize Strategy loses its feasibility and effectiveness without all Members on board. A majority style vote could overcome this.

Following detailed economic modelling during the feasibility study it may be deemed that to maximise the effectiveness of the Oneprize’s secondary purpose to accelerate the development of the Sustainable Aviation Fuel industry that the option of ‘voluntary cessation of the Oneprize’ should be withdrawn. This could lead to an unfavourable situation for Oneworld Members should one or more Oneworld Members go bankrupt, as the others would be forced to make up the shortfall in prize monies. To mitigate against this risk insurance investments should be employed to the Oneprize will be awarded.



External Risks

The Oneworld Alliance may need to lobby the European Commission to ensure that the EU ETS continues with its plan to include the aviation industry within scope from mid-2012 so that the competitive advantages for Oneworld member airlines that the Oneprize Strategy seeks are realised with minimal timing risk.

Economic evaluation of the forecast price of carbon on the carbon market between 2012-2017 should be conducted to ensure that the Oneprize Strategy can achieve its mission.

It is assumed the Supplier will have the means and intention to protect their Intellectual Property regarding their fuel product for at least the duration of the Oneprize Exclusivity Clause, making them the sole producer. This will minimise the likelihood of a similar competing product being created that would reduce the benefit to the Oneworld Alliance of the Oneprize Strategy.

The ability for industry to develop and commercialise a Sustainable Aviation Fuel product that meets all Oneprize expectations and specifications prior to 2012 is judged to be extremely limited, however, if this situation were to arise some alteration to the Oneprize Strategy would be needed. It therefore needs to be confirmed that this is virtually impossible.

A global carbon pricing scheme, such as the one to be discussed in Copenhagen at COP15 later this year, would require some adjustment to the Oneprize Strategy (mainly increasing size and scope) however, when adjusted this would actually further improve the commercial benefits of the Oneprize Strategy. Therefore, to mitigate this, a clause should be included in the Oneprize Competition terms to allow flexibility for this rearranging and expansion in size and scope. It is assumed that a global carbon-pricing scheme will take many years to implement and therefore should not be waited for.

An unethical situation may arise whereby conventional jet fuel suppliers may collude or lobby Oneworld Members to drop the Oneprize Strategy. However, it should be noted that such suppliers will likely be the leading contenders for the Oneprize therefore it will be in their general interest to support and compete for the Oneprize.

The Oneprize Strategy still places a requirement for the Sustainable Aviation Fuel product to be priced competitively with conventional jet fuel from the outset. The price of Sustainable Aviation Fuel must be locked in price-parity to each purchasing Oneworld Member’s average annual forecast jet fuel ‘in-wing’ per litre cost, to be updated monthly, for the duration of the Exclusivity Clause. However, this will provide a benefit to the Supplier because as a result they will be able to accurately forecast demand and revenue and thereby manage supply



and costs very specifically and efficiently, and will also benefit the Oneworld Members as the Oneprize Strategy will be more likely to succeed in the overarching mission.

A reduction in the volatility of oil markets would allow for more confidence in the annual forecast jet fuel cost for that period that gives rise to the requirement for competitive pricing of Sustainable Aviation Fuel. The Oneworld Alliance should lobby the relevant powers to adopt strategies that reduce oil market volatility. This risk will be covered by the annual ‘settling up’ action between the Parties, and therefore largely passed onto the Supplier. Diversifying the aviation fuel market with the inclusion of Sustainable Aviation Fuel will reduce market price volatility.

As it stands today the OPEC cartel can, to some degree, control the global price of oil and as such could possibly conduct predatory pricing whereby if it were to flood the market with supply of conventional fossil crude oil it could push Jet A-1 prices so low as to lead to the bankruptcy of the Supplier who would be unable to remain viable at such low prices. However, as the world’s finite reserves of ‘easy’ fossil oil continue to be depleted, and the demand for liquid transport fuels continues to increase it is clear that over the long term, the price for conventional fossil crude oil will be forced to exponentially increase according to the laws of supply and demand. The Oneprize Strategy is set up in such a way that either way this risk is borne by the Supplier, not the Oneworld Alliance.

A possibility exists that an airline or other transport group may seek to produce a similar prize for a similar purpose that does not have such stringent triple-bottom-line requirements. This product may lack long term future focussed ideals but may be able to produce a cheaper alternative fuel product as a result. This would confuse the consumer and dilute the effectiveness of the marketing potential of this strategy. This weakness will be overcome by having a larger prize purse and using extremely well known and highly respected competition judges so that consumers will be able to distinguish the Oneprize credibility and superiority over its competitors.

R&D, Procurement, and Distribution Supply Chain consultants should be employed to model the expected timelines and overall outcomes of the Oneprize Strategy. It needs to be confirmed that the Oneprize Winner is the ‘right’ company and that it will not be gazumped by a better and cheaper producer before the mission of the Oneprize Strategy is realised. Economic modelling and other forecasts should confirm that it is highly unlikely that the Suppliers competitors will be able to produce a better product within the short term. Due to jet fuel’s homogenous nature, specifications, and market based pricing a fuel that is priced cheaper than market parity is highly unlikely.

Several other airlines are actively investigating Sustainable Aviation Fuels. It is apparent that their concept plans are capital intensive and high risk- and can expect limited financial benefit (mainly via



marketing potential) without carbon pricing schemes operating in their respective regional markets.

The Virgin Group appears to have a strong forward thinking agenda towards producing a similar Sustainable Aviation Fuel. Richard Branson has committed all profits from his transport businesses to Virgin Fuels, investing in clean renewable technologies. This organisation does not appear to be seeking to exclusively secure Sustainable Aviation Fuel producers at this time. Although Richard Branson is running an exciting Virgin Earth Challenge with a $25 million prize purse, the Virgin Group alone is unlikely to be able to compete with the Oneprize. The Oneworld Alliance’s transport industry dominance and economies of scale are such that only the two other major air transport industry alliances, Skyteam and Star Alliance, could realistically compete with the Oneprize.

A risk exists that competing airlines alliances, Skyteam or Star Alliance could announce a similar strategy to the Oneprize but before the announcement of the Oneprize, which would make the Oneprize Strategy untenable. This can be mitigated by quietly, rapidly and accurately evaluating and developing this concept.



Next Steps

The CEO of an Oneworld Alliance member must endorse this plan and take it to the Oneworld management committee meeting for initial consideration.

Ask the Oneworld management organisation to use actual internal data from all

oneworld airlines to evaluate the opportunity.

As British Airways stands to gain the most from this concept it is suggested that they lead this effort.

This is a global project for the commercial benefit of the Oneworld alliance

member airlines.

“We believe that more institutions should harness the power of this flexible, expressive instrument in their efforts to generate social and business benefits.”

- Jonathan Bays and Paul Jansen, McKinsey & Company report ‘Prizes: a winning

strategy for innovation’, July 2009



Appendices



Aviation and our Environment:

Key Background Facts “Aviation is responsible for the livelihoods of 32 million people around the world, and accounts for some US$3.56 trillion – or 7.5% of global GDP – in economic activity.”ix “Today, aviation is responsible, according to the UN International Panel on Climate Change (IPCC), for around 2% of global carbon emissions – representing some 673 million tonnes of carbon in 2007. The industry is expected to account for around 3% of global emissions by 2050.”x Calculations for oneprize concept show the Oneworld Alliance member airlines produced approximately 100 million tonnes of CO2 in 2008. That equates to approximately 15% of that produced by all of the aviation industry. It follows therefore; that in 2008 the Oneworld Alliance produced approximately 0.3% of the world’s man-made CO2 emissions. “Aviation consumes 2% of all fossil fuels burnt. This represents 12% of the fuel consumption of the entire transportation sector, to be compared with 80% dedicated to road transport. The most common fuel is a kerosene/paraffin oil-based fuel classified as JET A-1, which is produced to an internationally standardised set of specifications. In 2005, the total Jet A-1 fuel consumption represented 55 billion US Gallons or 208 billion litres. This corresponds to average fuel consumption per flight hour of 970 US gallons or 3 metric tonnes. Each tonne of fuel burnt in the air or on the ground produced 3.16 tonnes of CO2. Therefore, 55 billion US gallons of jet-fuel represent 540 million tonnes of carbon dioxide.”xi “The challenge is how to minimise and even eliminate the environmental impacts of aviation whilst still retaining its unchallenged economic and social benefits.”xii



Carbon Intensity Whilst most airlines are improving fuel efficiency and therefore reducing carbon intensity, the overall long term trend is for continuing growth of overall capacity and fuel consumption leading to a continuation of growth of the global air transport industry’s carbon footprint. See the graph below that highlights Qantas’ reduction in carbon intensity.

Qantas, like most major airlines, continues to reduce its carbon intensityxiii

Yet, due to capacity growth, overall carbon emissions from airlines are expected

to continue to increase

Diagrammatic principle of the European Union Emissions Trading Scheme showing forecast growth in

the aviation industry’s European CO2 footprint xiv



Emission Trading Schemes: Basic Theory What are they and how do they work?

“An Emission Trading Scheme (ETS) is an economic-driven measure used to control emissions by providing incentives for achieving reductions. It is sometimes called a ‘cap and trade’. A central authority (usually a government or international body) sets a limit or cap on the amount of emissions. Companies or other groups are then issued emission permits (also known as allowances), which limit them to a certain level of total emissions. Companies that need to increase their emissions (e.g. because of traffic growth) must therefore buy permits from those who emit less. The transfer of allowances is referred to as a trade. In effect, the buyer pays a charge for emitting beyond its cap, while the seller is rewarded for having reduced emissions below the cap / allowance allocated. In theory, therefore, those that can most easily reduce emissions most cheaply will do so, achieving reductions at the lowest possible cost to society. Since emissions are traded on the open market, the price can rise and fall. The central authority may increase or reduce the total number of permits available if they wish to decrease or increase the price; however, it should be considered that this may lead to some market instability and uncertainty during this changeover period. In the case of the European Union’s proposed scheme, as it covers aviation, the emission being traded is CO2 with the cap set to the average of 2004-2006 emissions.”xv Emissions Trading Schemes are more economically efficient than, and therefore preferable to, carbon tax mechanisms, to reduce emissions in the lowest cost manner.



Future carbon pricing schemes The carbon pricing schemes currently under consideration or already in

development as of 2009 • The European Union Emission Trading Scheme – As discussed and considered within this document • The Australian Emission Trading Scheme – Following publication of a Green Paper in July 2008, the Australian Government is now considering establishing a domestic emission-trading scheme, with the aim of passing the necessary legislation in late 2009 or early 2010. • Japan Cap and Trade – In February 2008, Japan announced that it intended to put in place a cap and trade scheme, which would allow Japan to set its own national goal for reducing greenhouse gas emissions after 2012. • New Zealand ETS – In September 2008, the New Zealand Government passed legislation for the introduction of the New Zealand Emission Trading Scheme, which will also cover liquid fossil fuels and transport from 2011 (the original proposal was 2009). • US Federal proposal – The American Clean Energy and Security Act 2009, also known as the Waxman-Markey Bill, has a similar aim for a cap-and-trade plan of greenhouse gases to address climate change. The US House of Representatives approved this bill on 26 June 2009. This bill is yet to be approved by the US Senate. US President Obama has pledged to implement an economy-wide cap-and-trade program to reduce greenhouse gas emissions by 80% by 2050. • A Global Carbon Price – To be discussed at the Copenhagen Climate Summit late 2009. Little detail is known publically. It is predicted that it will take many years to negotiate, develop and implement. The aviation industry may need to develop its own global sectoral approach if it wishes to avoid an undesirable piecemeal domino approach to carbon pricing.



Other Key Quotes Quotes from Oneworld airline members, other relevant sources and important

background information Some recent prizes go beyond promoting specific innovations. By emulating market incentives and exposing latent demand, these competitions attempt to stimulate an entire market. The $10 million Ansari X PRIZE, awarded in 2004, is celebrated example” - Jonathan Bays and Paul Jansen, McKinsey & Company report ‘Prizes: a winning strategy for innovation’, July 2009 “I’d love to see the day when the world’s biggest challenges – whether it’s poverty, hunger, pollution, environmental, energy issues – have these mega-prizes out there that sway where graduate students do their research, where companies do R&D, where people aspire to go to attack these challenges not only to win the money and the glory but the thanks of humanity.” - Peter Diamandis, Chairman and CEO of the X Prize Foundation, July 2009

“We believe carbon trading is the most effective way of controlling emissions in an economically sensible manner. So when the UK Government endorsed the introduction of aviation into the EU Emissions Trading Scheme it should have been a decision to welcome. But we were disappointed that the implementation date was delayed until 2012 and not confined to intra-EU airlines.” - Martin Broughton, British Airways Chairman, British Airways 2007/2008 Annual Report, p6 “Our industry’s most pressing corporate responsibility is to reduce the carbon emissions from its operations. The recent agreement between the International Air Transport Association and the airlines to a joint commitment on this is an important step forward for our industry. We continue to be leaders in this field. We are the only airline to have taken part in an emissions trading scheme. Since 1990 we have cut our emissions by 28 per cent and in 2007/08 set ourselves the new target of cutting our CO2 by a further 25 per cent by 2025.” - Willie Walsh, CEO, British Airways 2007/2008 Annual Report, p9 “We have put corporate responsibility at the centre of our business priorities and our ambition is to be a leader in this field. During the year we announced that Silla Maizey – formerly Head of Procurement – had been appointed as our first ever Head of Corporate Responsibility, reporting directly to me. We are determined to grow. But we are equally determined to grow responsibly, and I hope Silla’s appointment will be seen as a statement of our serious intent. Undoubtedly, climate change is our most significant challenge in this respect. Our industry gets pilloried by some environmentalists for its contribution to global warming. We don’t agree with their analysis, but I want to be very clear that we do intend to be in the vanguard in tackling this issue.” - Willie Walsh, CEO, British Airways 2007/2008 Annual Report, p11 “Failure to adopt an integrated environmental strategy could lead to a deterioration in our reputation and consequential loss of revenue. An increased



focus on corporate responsibility and a published emissions reduction target will help deliver the refocused strategy.” -Section ‘principal risks and uncertainties’, British Airways 2008 Annual Report, p36 “Successful prize sponsors think strategically by investing significant resources in prize development long before announcing a purse” - Jonathan Bays and Paul Jansen, McKinsey & Company report ‘Prizes: a winning strategy for innovation’, July 2009

“We know that the sustainability agenda is much more than just the viability of the individual businesses. It’s about how we shape our collective destiny as a society. At Qantas we accept the urgency of the challenge” - Geoff Dixon, CEO, Qantas Airways Sustainability Report 2008, p1 “We have made good progress in implementing a comprehensive climate change programme. This includes fuel and energy efficiency initiatives, support for effective policy measures to address absolute emissions growth, voluntary carbon offsetting and support for scientific research. We have developed a company-wide target to improve carbon efficiency, expressed in grams of CO2 per passenger kilometre (gCO2/pkm), by 25 per cent from 111 grams in 2005 to 83 grams in 2025. In 2007 our performance was 110 gCO2/pkm. This goal is now one of our overall corporate goals, signalling the importance of climate change to our business. During the year we have carried out an extensive assessment of our carbon footprint, applying the greenhouse gases (GHG) protocol corporate standard guidelines. Our carbon footprint in 2007/08 was 17.7 million tonnes. In January 2008, we launched a significant upgrade to our passenger carbon offset scheme introducing a ‘one click’ highly visible option into the ba.com booking process. This scheme helps fund UN certified emission reduction initiatives in developing countries, such as clean energy projects in China and Brazil. We continue to work to secure the timely and pragmatic inclusion of aviation CO2 emissions into the EU Emissions Trading Scheme in preference to aviation taxes which we believe are ineffective in tackling climate change. We are actively leading the development of a global agreement in aviation climate policy – both within industry (e.g. at IATA and AEA and as a leading member of the UK Sustainable Aviation Group) and in broader global forums such as the World Economic Forum and the Gleneagles Climate Change Dialogue, and the European Round Table of Industrialists. We are also supporting a number of climate change scientific research projects. These include work led by Cambridge University to investigate research pathways for improving understanding of non-CO2 aircraft climate effects, the European Commission IAGOS project which is investigating the feasibility of using aircraft to collect atmospheric data in-flight and work by the Global Canopy Programme to prevent deforestation – a large source of climate change emissions.” -Section ‘corporate responsibility’, British Airways 2008 Annual Report, p48

“Many aspects of the Company’s operations are subject to increasingly stringent environmental regulation. Concerns about climate change and greenhouse gas emission, in particular, may result in the imposition of additional legislation or



regulation. For example, the EU recently approved measures that impose emission limits on airlines with operations to, from or within the EU as part of an emission trading system beginning 2012. The Company is currently assessing the potential costs of the EU measures. Such legislative or regulatory action by the U.S. or foreign governments currently or in the future may adversely affect the Company’s business and financial results.” -American Airlines(AMR Corporation) 2008 Annual Report, p7

“• We published our 2007 Corporate Social Responsibility Report in June, outlining the progress made last year in areas such as environmental initiatives, community activities and requirements for procurement and supply chains. We also outlined our agenda items for the current year, setting targets for each of the key areas. The 2007 report is available online at www.cathaypacific.com. We are currently working on our 2008 Corporate Social Responsibility Report. • A Corporate Social Responsibility supplier Code of Conduct was implemented and published on our Intranet. • The Business Environmental Council carried out an audit of Cathay Pacific’s headquarters for the Clean Air Charter Certification Scheme in November. The results were announced in February 2009 certifying our compliance with the scheme. • Together with Dragonair we continue to promote our “FLY greener” carbon offset programme, the first of its kind to be launched in Asia. The carbon credits are currently being sourced from a large wind farm near Shanghai. In the first year, 3,752 tonnes of carbon dioxide were offset by passengers, including other corporates in Hong Kong, through “FLY greener”, the majority using Asia Miles to pay for their offsets. In 2009, we will look at ways to further promote “FLY greener” to the public. • We also offset carbon emissions associated with staff business travel at the airline. In 2008 we offset 11,814 tonnes of carbon dioxide at a cost of approximately HK$900,000. • We will launch new regional projects for our carbon offset initiatives in 2009. • Our overall fleet efficiency continues to be boosted by the introduction of newer, more fuel-efficient aircraft. For example, the new Boeing 747-400ERF freighter is 16% more fuel-efficient than the Boeing 747-200F “Classic” freighters that are now being retired. The use of the new Boeing 777-300ER on our North Pacific routes is resulting in up to 28% efficiency gain compared to the aircraft it replaces. The phasing out of our older “Classic” freighters has also reduced our fuel burn and associated emissions. • Cathay Pacific sponsored the second “Greener Skies“ forum in Hong Kong in February, organised to form an industry response to the global warming issue. • Biodegradable plastic bags started to be used inflight from September and we now also recycle plastic cups from Economy Class. • Six of our staff were nominated as “Earth Champions” in the Hong Kong stage of the Earth Champion Quest. • Cathay Pacific is part of a new industry coalition, the Aviation Global Deal (AGD) group, which in February 2009 called for CO2 emissions from international aviation to be included in a new global climate deal. The agreement will be negotiated by world leaders at the United Nations climate summit in Copenhagen in December. • In November, employees from the airline were able to see the work of The Nature Conservancy at first hand during a field trip to Yunnan Province. Dragonair supports the work of the organisation through its “Change for Conservation” inflight fundraising programme.”



-Cathay Pacific 2008 Annual Report, p10

“Our company will make a significant contribution to the search for a viable, sustainable, second-generation bio fuel for commercial use by the aviation industry by conducting a demonstration flight towards the end of this fiscal year.” -JAL 2008 Annual Report, p12 “In June 2008 JAL agreed, jointly with Boeing and Pratt & Whitney, to make a 2nd generation bio fuel demonstration flight (JAL Biofuel Flight) using bio fuel from non-food crops, its purpose being to encourage the development of environmentally conscious alternative fuels. We intend to make Asia’s first bio fuel flight before the end of FY2008. The fuel tanks will be filled with a bio fuel mix (a mixture of bio fuel and conventional jet fuel) and, separately, conventional jet fuel, so that during the flight one of the four engines of a Boeing 747 uses bio fuel, and the other three use normal jet fuel. So as not to impose an additional burden on the environment and human development, the bio fuel to be used will be selected from among bio fuels that are not made from food crops, so-called second-generation bio fuels.” -JAL 2008 Annual Report, p14 “As a symbol of the JAL Group’s commitment to the environment, since June 2008 the Group has been operating a “JAL Eco Jet” with its tail painted green. Through the JAL Eco Jet, we plan to raise people’s awareness of the importance of the Earth’s environment.”

JAL “Eco Jet” Boeing 777-200, JAL 2008 Annual Report, p14

“The Global Environment Committee, chaired by the President & CEO of JAL, was set up in April 2008 to take over responsibility from the Environmental Sub-committee (under the CSR Committee) for responding to society’s demands for corporate action with regard to environmental issues.” -JAL 2008 Annual Report, p15 “The aviation industry reportedly is responsible for some 2% of global emissions of carbon dioxide, and as a member of that industry we consider environmental conservation to be an important management issue. Accordingly, to bring ourselves into harmony with the global environment we will be taking a variety of steps to reduce the environmental footprint of our operations, including cleaning aircraft engines more frequently, reducing the weight of on-board items, and



employing environmentally-conscious operating methods, including as regards aircraft speeds and altitudes to ultimately increase our fuel efficiency and consequently help us in reducing our total CO2 emissions.” -Haruka Nishimatsu, JAL Group CEO, JAL 2008 Annual Report, p6 “I consider the very basis of the JAL Group’s strategy to be a total dedication to safety and security, the assurance of punctuality, ongoing implementation of the Premium Strategy, and the provision to customers of more attractive and comfortable air travel. This will also contribute to the harmonious development of society, and help enable us to fulfil our responsibilities to society as a corporate citizen.” -Haruka Nishimatsu, JAL Group CEO, JAL 2008 Annual Report, p8

“As regards the initiatives we have taken as a socially responsible company, the Corporate Responsibility framework has been reviewed to adapt it to the new directives of the 2009-2011 Strategic Plan and prevailing best practices on the market. The framework establishes the guidelines for action in aspects such as environmental and social performance and the company’s stakeholder engagement. Iberia’s efforts in this regard have led to its simultaneous inclusion in the selective Dow Jones World and European Sustainability Indexes and, for the first time, in the FTSE4Good IBEX. All these indexes recognise the best practices in Corporate Social Responsibility and are a value added for us and motivation to continue improving every day.” Fernando Conte, President of Iberia, 2008 Annual Report, p4 “Iberia’s mission is to offer air transport, airport and aircraft maintenance services that live up to the expectations of our customers and create economic and social value on a sustainable basis. Iberia seeks to become the leading company in terms of customer satisfaction in its strategic markets (Latin America, Europe and Domestic), and to offer the optimal price/service quality relationship. Iberia wishes to offer its shareholders notable and sustained profitability and strives to attain the maximum professional development of all its employees. Iberia endeavours to be recognised for its transparency and its firm social and environmental commitment. Accordingly, the Company is committed to entities that implement social cooperation projects and improve living conditions by promoting the involvement of its customers and suppliers and counting on the active participation of its employees. Also, Iberia pursues a global environmental protection policy that includes all its activities, both on the ground and in flight. Iberia is committed to innovation, ongoing improvement and management excellence as key tools to create value and guarantee the future of the Company. In recognition of the actions implemented by the Company in this field, in 2008 Iberia simultaneously joined the most prestigious stock market indexes; the select European Dow Jones Sustainability STOXX Index and the Dow Jones Sustainability Index World and the FTSE4Good IBEX. These indexes select the companies with the best practices in economic, social and environmental matters, of which only three are airlines.” - Iberia 2008 Annual report, p60 “As regards flight operations, the reduction of the average age of the fleet through the renewal of aircraft (mainly the McDonnell-Douglas aircraft), the adoption of new operational measures, and the improvements obtained in flight programming and the load factor enabled Iberia, for yet another year, to reduce sound emissions and emissions affecting climate change. These improvements



will allow the company to successfully meet the requirements of future European legislation, which comes into force in 2012, to limit CO2 emissions in the aviation industry, and which was included in an EU directive approved last November.” - Iberia 2008 Annual Report, p82 “Iberia also participates in various work groups which, at both national and international level, analyse, promote and inform on the best environmental practices in the sector. Also, in 2008 Iberia was simultaneously admitted to the most significant sustainability indexes in the world, the Dow Jones Sustainability Index (World), the Dow Jones Sustainability Index (European) and the FTSE4Good (IBEX). They all acknowledge the best environmental, social and economic practices at international level obtained through an exhaustive analysis amongst a group of large companies. Iberia achieved the maximum score in categories such as the local air quality.” - Iberia 2008 Annual Report, p83 “The company strives unceasingly to maintain a balance between development of its business activities and their impact on the environment. Environmental protection has, therefore, been a constant feature in the company for many years and is singled out as one of its corporate priorities.” - Iberia 2008 Annual Report, p257

“As the national airline of Hungary we conduct all our activities, and plan and implement our developments, with particular regard to preserving and protecting the environment. We are fully aware that, as a player on the aviation market, the formation and development of an environmentally conscious approach is a fundamental requirement expected of us. This is precisely the reason that we have undertaken a commitment in our corporate environmental policy to continually improve our environmental protection activities and prevent environmental pollution.

Accordingly, we have formulated the following objectives: 1. We shall endeavour to establish a modern, economical, low emission fleet and employ techniques and procedures causing the least possible impact to the environment. 2. When planning new investments and developments, we are committed to take the fullest possible account of environmental protection factors. 3. We shall continually monitor the environmental factors of our activities and make every effort to reduce their harmful environmental impacts. 4. We shall place particular emphasis on expanding an environmentally conscious attitude among our staff and continually broadening their understanding of green issues. 5. We shall participate in the relevant activities of international organizations, and through our observations assist in the formulation of legislation. 6. We shall give particular attention to the communication of information on environmental protection, compliance with the provisions of prevailing legislation and orders issued by authorities, and the operation of systems serving to shape public opinion. We expect every member of staff to assist in realizing environmental protection goals.” -Malev Airlines- Environmental Policy, 2009, http://www.malev.com/companyinformation/respecting-our-world/environmental-policy



“Mission Our mission is to develop and implement strategies and programs for Royal Jordanian that supports the company's responsibility towards the environment. Objectives

1. Setting strategies, polices and practices that comply with environmental laws and regulations.

2. Ensuring efficient resource utilization and energy consumption throughout the company.

3. Proposing solutions to minimize emissions resulting from air and ground operations.

4. Proposing solutions to minimize noise from aircraft operations. 5. Proposing solutions for waste reduction and proper waste disposal and

recycling. 6. Promoting environmental awareness, active participation and commitment

of all staff. 7. Building relationships with authorities (local and global) and communicating with the community through making social and environmental contributions.

Responsibility Assessing Royal Jordanian's operations and activities to address the environmental risks. Comprehending environmental legislation and regulation, and any other requirements to which Royal Jordanian subscribes. Developing and maintaining Environmental Management System (EMS) that provides a structured approach to help the company minimize its operations that affect the environment and to help ensure compliance with industry regulations and corporate commitments. Achieving the specific environmental targets and objectives the Corporation has developed through introducing environmental programs that will help in: Improving use of resources (materials, processes, equipment, and facilities) Improving fuel efficiency of the fleet. Minimizing generation of waste and emissions. Preventing pollution. Conserving water. Recycling materials. Reducing aircraft noise. Taking necessary actions to participate in the carbon trading and carbon offsetting schemes. Developing environmental campaigns to facilitate mutual understanding and contribution of stakeholders to gain environmental excellence.” - Royal Jordanian, Environmental Policy, 2009, http://www.rj.com/AboutUs/Environment/RJEnvironmentalPolicy/tabid/360/Default.aspx

“Environmental protection is one of our strongest commitments.”

- Mexicana , April 2009 http://www.mexicana.com/cs/Satellite?Level=1&pagename=MexicanaG5_US_EN%2FPage%2FPrincipalPageComposition_US_EN&assetId=1143494208252&URLTemplate=/cs/Satellite?pagename=MexicanaG5_US_EN/MexContainer_C/LandingBusiness&idContainer=1151322259211&ChannelID=1143494208252



“Operating in accordance with the principles of sustainable development is vital for the whole industry. Finnair’s ability to bear its responsibility begins with its finances. A competitive and profitable Finnair is able to invest in a modern fleet, which is the biggest environmental act an airline can make. Finnair takes environmental aspects into consideration in all of its actions. Social responsibility begins from inside: safeguarding jobs and the wellbeing of personnel is important for Finnair and is at the same time a prerequisite for success.” -Finnair 2008 Annual Report, p61 “Finnair’s first environmental report was published in 1997. An airline’s most significant environmental choice is its fleet, but Ihamäki considers that the whole industry should cooperate to reduce the environmental effects” - Kati Ihamaki, Finnair VP Sustainable Development, Finnair 2008 Annual Report, p62 “All the conditions for air traffic growth exist. Growth will even accelerate significantly as zero-emission technology is commercialised and widely introduced. A proviso, however, is a commitment to sustainable development. This will require from airlines a healthy financial condition and an ability to invest in the latest technology.” -Finnair 2008 Annual Report, p74 “Corporate Social Responsibility (CSR) is a concept whereby companies integrate environmental and social concerns in their business activities and in their interaction with stakeholders on a voluntary basis.” -EU Green Paper on Corporate Social Responsibility, 2001 “While jatropha is offering hope, algae, which quite possibly the Holy Grail of fuels, is offering salvation for the aviation industry.” - Geoffrey Thomas, Air Transport World, January 2009, p50 “Remy suggests 2020 for a commercially available algae based bio fuel, with production, harvest, drying and pressing and refining issues to be resolved, along with certification.” - Geoffrey Thomas, Air Transport World, January 2009, p50 on Sebestien Remy, Head of alternative fuels research programs at Airbus Industries

Source : New Scientist magazine, August 2008 edition



MEDIA RELEASE from the Sustainable Aviation Fuel Users Group xvi

24 September 2008

Boeing Joins Aviation, Energy and Academic Leaders to Accelerate Development and Availability of Sustainable Biofuels

Environmental groups applaud effort to develop sustainable fuel alternatives SEATTLE, Sept. 24, 2008 -- Boeing has, with leading air carriers and Honeywell's UOP, a refining technology developer, established a group to accelerate the development and commercialization of sustainable new aviation fuels. With support and advice from the world's leading environmental organizations, the World Wildlife Fund (WWF) and Natural Resources Defense Council (NRDC), the Sustainable Aviation Fuel Users Group makes commercial aviation the first global transportation sector to voluntarily drive sustainability practices into its fuel supply chain. The group's charter is to enable the commercial use of renewable fuel sources that can reduce greenhouse gas emissions, while lessening commercial aviation's exposure to oil price volatility and dependence on fossil fuels. Airlines supporting the sustainable fuels initiative include Air France, Air New Zealand, ANA (All Nippon Airways), Cargolux, Gulf Air, Japan Airlines, KLM, SAS and Virgin Atlantic Airways. Collectively, they account for approximately 15 percent of commercial jet fuel use. "We welcome the aviation sector's will to reduce their greenhouse gas emissions, and appreciate their efforts to ensure the sustainability of their biofuels sourcing," said Jean-Philippe Denruyter, WWF global bioenergy coordinator and Steering Board member of the Roundtable on Sustainable Biofuels. "By teaming up with the Roundtable on Sustainable Biofuels, the aviation sector can build on an existing solid multi-stakeholder process that will reinforce this initiative." All group members subscribe to a sustainability pledge (http://www.boeing.com/commercial/environment/pdf/sustainable_aviation_fuel_users_group.pdf) stipulating that any sustainable biofuel must perform as well as, or better than, kerosene-based fuel, but with a smaller carbon lifecycle. The user's group pledged to consider only renewable fuel sources that minimize biodiversity impacts: fuels that require minimal land, water and energy to produce, and that don't compete with food or fresh water resources. In addition, cultivation and harvest of plant stocks must provide socioeconomic value to the local communities. "This is a tremendous opportunity for leading airlines, supported by well-respected energy and environmental organizations, to help commercial aviation take control of its future fuel supply in terms of origin, sustainability and environmental impacts," said Billy Glover, managing director, Environmental Strategy for Boeing Commercial Airplanes. "The number one priority going forward is to complete thorough assessments of sustainable plant sources, harvesting and economic impacts, and processing technologies that can help achieve that goal." The group has announced two initial sustainability research projects. Assistant



Professor Rob Bailis of Yale University's School of Forestry & Environmental Studies, through funding provided by Boeing, will conduct the first peer-reviewed, comprehensive sustainability assessment of jatropha curcas to include lifecycle CO2 emissions and the socio-economic impacts to farmers in developing nations. Similarly, NRDC will conduct a comprehensive assessment of algae to ensure it meets the group's stringent sustainability criteria. Both species may potentially become part of a portfolio of biomass-based renewable fuel solutions that, through advanced fuel processing methodologies developed by energy sector leaders such as UOP, can help aviation diversify its fuel supply. "This taskforce comes at just the right time to help airlines cut costs and decrease their greenhouse gas emissions," said Liz Barratt-Brown, NRDC senior attorney. "If done right, sustainable biofuels could lower the airlines' carbon footprint at a time when all industries need to be moving away from fuels with high levels of greenhouse gas emissions, especially high carbon tar sands and liquid coal." ### Contact Info: Terrance Scott Boeing Commercial Airplanes +1 206-571-8070 [email protected] Jim Proulx Boeing Commercial Airplanes +1 206-766-2041 [email protected]



Visioning the Sustainable Feedstock

Overall evaluation and consideration suggests the Winner will likely choose to use a waste stream or algae as the sustainable feedstock.

Very basic example diagram of an ‘algae feedstock to biodiesel’ production processxvii

Solix Corporation’s proposed biofuel production facilityxviii

Solix Corporation proposes that it will use algae as the feedstock. A large plant, such as this, constructed in North Africa (i.e. Sahara desert) may be geographically ideal location for the European market. As British Airways is most heavily exposed to the EU ETS it is intuitively possible that the fuel supply would be rolled out to a London hub airport first for British Airways and then into other major European airports that are intensive Oneworld hubs. At this early stage British Airways is therefore most likely to be the launch customer of a Sustainable Aviation Fuel and therefore the Oneprize Strategy.



A Technical Overview of Jet Fuel (Jet A-1) For background referencexix

Typical physical properties of Jet A-1 that any SAF must align Composition

Total acidity, mg KOH/g 0.003 Aromatics, % vol 19.5 Total sulphur, % mass 0.02 Mercaptan sulphur, % mass 0.0003

Volatility Distillation

Initial boiling point, ºC 156 Fuel recovered

10% vol at ºC 167 20% vol at ºC 172 50% vol at ºC 188 90% vol at ºC 234

End point, ºC 258 Residue, % vol 1.0 Loss, % vol Nil

Flash point, ºC 42 Density at 15ºC, kg/m3 804

Fluidity Freezing point, ºC -50 Viscosity at -20ºC, mm2/s 3.5

Combustion Specific energy, net, MJ/kg 43.15 Smoke point, mm 25 Naphthalenes, % vol 1.5

Corrosion Copper strip (2h at 100ºC) 1A Silver strip (4h at 50ºC) 0

Stability Thermal stability (JFTOT), control temperature 260ºC

Filter pressure differential, mm Hg 0.1 Tube deposit rating (visual) 1

Contaminants Existent gum, mg/100ml 1.0 Water reaction

Interface rating 1 Conductivity

Electrical conductivity, pS/m 180



General qualities of Jet A-1 that any SAF must align

In general, a gas turbine fuel should have the following qualitiesxx: 1) Be ‘pumpable’ and flow easily under all operating conditions 2) Permit engine starting at all ground conditions and give satisfactory flight

relighting characteristics. 3) Give efficient combustion at all conditions 4) Have as high a calorific value as possible. 5) Produce minimal harmful effects on the combustion system and turbine

blades 6) Produce minimal corrosive effects on the fuel system components. 7) Provide adequate lubrication for the moving parts of the fuel system 8) Reduce fire hazard to a minimum.



Initial Financial Analysis



i Directive 2008/101/EC Of The European Parliament And The Council, European Commission, viewed 20 February 2009, <http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32008L0101:EN:NOT> ii The Ansari X Prize, X Prize Foundation, viewed 20 February 2009, < http://space.xprize.org/ansari-x-prize > iii Emissions Trading overview, Wikipedia, viewed February 2009, <http://en.wikipedia.org/wiki/Emissions_trading> iv Official list of airlines included in the EU ETS, European Commission, viewed 20 February 2009, <http://ec.europa.eu/environment/climat/pdf/aviation/alloc_operators_110209.pdf> v The air transport industry and the environment: SITA White Paper, SITA, viewed 20 February 2009, <http://www.sita.aero/content/ati-and-environment-0> vi Caring for our world: Oneworld airlines and the environment, Oneworld, viewed 20 February 2009, <http://www.oneworld.com/news-information/oneworld-fact-sheets/caring-for-our-world-oneworld-airlines-and-the-environment> vii Maslow’s Theory, Simply Psychology, viewed 20 February 2009, <http://www.simplypsychology.org/maslow.html> viii Maslow’s pyramid, Anonymous, viewed 20 February 2009, <http://en.wikipedia.org/wiki/File:Maslow%27s_hierarchy_of_needs.svg> ix The economic and social benefits of air transport 2008, Air Transport Action Group, viewed 20 February 2009, <www.atag.org/files/soceconomic-12116a.pdf> x UN International Panel on Climate Change, Fourth Assessment Report, UNIPCC, viewed 20 February 2009, <www.ipcc.ch/ipccreports/ar4-wg3.htm> xi Air Transport Action Group, ATAG, viewed 20 February 2009, <http://www.atag.org/content/showissue.asp?pageid=1084&level1=3&level2=472&level3=1084> xii ‘The air transport industry and the environment: SITA White Paper, SITA, viewed 20 February 2009, <http://www.sita.aero/content/ati-and-environment-0> xiii Qantas Sustainability Report, page 23, Qantas Airways, viewed 20 February 2009, p23, <http://www.qantas.com.au/infodetail/about/investors/sustainability2008.pdf> xiv The air transport industry and the environment: SITA White Paper, SITA, viewed 20 February 2009, <http://www.sita.aero/content/ati-and-environment-0> xv The air transport industry and the environment: SITA White Paper, SITA, viewed 20 February 2009, <http://www.sita.aero/content/ati-and-environment-0> xvi Alternative fuel partnership teams Airbus with Honeywell, IAE and JetBlue, Enviro Aero, viewed 28 May 2009, <http://www.enviro.aero/Aviationindustryenvironmentalnews.aspx?NID=218> xvii Algae to biodiesel extraction process, University of Texas, viewed 20 February 2009, <http://www.utexas.edu/research/cem/algae%20extraction.html> xviii Solix production field, Solix Corporation, viewed 20 February 2009, <http://isiria.files.wordpress.com/2009/04/biocrude.jpg>



xix Air BP Handbook of Products Jet A-1, BP, viewed 20 February 2009, <http://www.bp.com/liveassets/bp_internet/aviation/air_bp/STAGING/local_assets/downloads_pdfs/a/air_bp_products_handbook_04004_1.pdf> xx Rolls Royce, 1996, The Jet Engine, P118, Rolls Royce Plc, Derby, United Kingdom

Oneworld Oneprize

Economy & Finance

Transcript of Oneworld Oneprize