Establishing private equity fund for sustainable aviation fuel

Given its share of greenhouse gas emissions, decarbonising the aviation industry is considered vital in the long-term transition to net zero and achieving the goal of limiting the increase in global warming to 1.5% above pre-industrial levels as per the Paris Agreement. One of the key ways to achieve this is through making eco-friendly aviation fuel alternatives more viable. Piper Alderman’s client is a key partner in the Sustainable Aviation Fuel Financing Alliance (SAFFA), a joint venture with major airline carriers. SAFFA’s goal is to accelerate the production of Sustainable Aviation Fuel (SAF) by investing in projects that are technologically mature and commercially viable. Our client specialises in financial advisory and capital raising services within the financial sector.

Piper Alderman acted for our client in relation to the establishment of a private equity fund for SAF. Each investor in the fund entered into an off-take agreement from the project refinery for the supply of aviation fuel. An off-take agreement is an arrangement between a producer and a buyer to purchase or sell portions of the producer’s upcoming goods.

One of Australia’s major airline carriers, represented by Minter Ellison, was the lead negotiator for the terms of the off-take. The investment by this carrier and the other airlines, and the negotiations of the various off-take arrangements, raised a number of complex competition law issues. This is primarily because it is illegal for businesses to make contracts, arrangements or understandings that substantially lessen competition. There is potential for Limited Partnership Agreements and Off-take Allocation Agreements, such as those used in the SAFFA, to be scrutinised under competition laws to ensure they don’t unfairly restrict competition or harm consumers.

Piper Alderman reviewed and provided competition law advice in relation to the Limited Partnership Agreement and the Off-take Allocation Agreement. Given that the investors in the fund were airline competitors, we had to ensure that the arrangements set out in the agreements did not breach the cartel conduct provisions of the Competition and Consumer Act. The agreements therefore needed to be drafted within the exceptions to the cartel conduct provisions.

The SAFFA fund made its first investment in April 2024 in US-based technology company Crysalis Biosciences, which aims to renew chemical manufacturing infrastructure with innovative fuel and chemical production technologies. The investment was only made after the parties were comfortable that all competition law risks had been successfully addressed.