In an environment-friendly move, United Airlines, the wholly owned subsidiary of United Continental Holdings UAL, announced that it is investing $30 million in California-based biofuel producer Fulcrum BioEnergy. Household trash can be converted into aviation fuel with the help of Fulcrum BioEnergy‘s technology.
United Airlines’ move marks the biggest single investment in alternative fuels by an American carrier so far. United Airlines’ decision to invest in a leading alternative fuels developer will not only make the carrier less vulnerable to oil-price fluctuations but also put a lid on carbon emissions from planes.
Apart from the $30 million investment, the companies have also inked a ten-year deal to consider the joint development of up to five biofuel plants situated near hubs of the Chicago-based carrier. The long-term deal has the potential to produce up to 180 million gallons of fuel on an annual basis. The pact with Fulcrum BioEnergy comes close on the heels of the Environmental Protection Agency’s decision to regulate air emissions. The Obama administration is also working on regulating aviation emissions.
The carrier estimates that it will start receiving fuel from Fulcrum BioEnergy in 2018, a year after the latter’s first alternative fuels plant is expected to commence commercial operation. The news of the carrier’s association with the development and promotion of commercialized aviation biofuel naturally impacted the stock positively.
Even though the proposed supply quantity is enough to run 20,000 flights annually, it forms a minimal percentage of the approximate 3.9 billion gallons of jet fuel used by the carrier last year. Nevertheless, the move is highly commendable as the usage of alternative fuel can help United Airlines bring down carbon emissions by a whopping 80% as against traditional fuel.
This is not the first time that United Airlines had made investments aimed at promoting sustainable aviation biofuels. In 2013, the Chicago-based carrier had inked a deal with AltAir Fuels. We note that United Airlines expects to operate flights from its Los Angeles hub utilizing biofuel produced by AltAir Fuels, later this year.
We note that United Airlines is not the first aviation company to invest in Fulcrum BioEnergy. Last year, Hong Kong-based Cathay Pacific Airways made an investment in the company.
Meanwhile, Southwest Airlines LUV inked a deal with Red Rocks Biofuels LLC in 2014 to purchase low carbon renewable jet fuel, which is produced from forest residues. Southwest’s move is meant to help reduce the risk of widespread wildfire damage in the western parts of the U.S. The agreement entails supply of about three million gallons of jet fuel per year.
Zacks Rank
United Continental Holdings currently carries a Zacks Rank #5 (Strong Sell). Better-ranked stocks in the airline space include Deutsche Lufthansa Aktiengesellschaft DLAKY and SkyWest Inc. SKYW. Both the companies sport a Zacks Rank #1 (Strong Buy).
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