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Switzerland agreed to buy F-35 jet fighters to park on a remote runway. Then the U.S. zeroed in on the Wangs, who owned the rustic hotel next door.

UNTERBACH, Switzerland—The Hotel Rössli, a century-old lodge in this Alpine valley village, enjoys a spectacular view from its front. The lace-curtained windows stare out into a crop of mountains capped with snow that melts into the nearby waterfall where Sherlock Holmes, in one of the novels, plummets to an untimely death.

But it is the view from the back that caught the attention of American intelligence agencies. About 100 yards from the rear of the rustic, wood-paneled inn, just past a child’s swing set, cuts the runway where the Swiss military had agreed to base several F-35s, the world’s most advanced jet fighter. The airstrip, only partly fenced, is so accessible to passersby that farmers sometimes lead cows across it, bells clanging from their necks.

Until recently, the hotel’s most pressing complaint came from elderly neighbors disappointed that its Chinese owners, the Wang family, had closed its restaurant after buying it in 2018. Though Wang Jin’s wife, Lin Jing, spoke only Mandarin, and communicated using hand gestures, he smoothed things over by introducing himself in decent German to residents who were flattered—“very Swiss,” one said.

On a crisp summer morning last year, Swiss federal police raided the Rössli, taking the Wangs and their 27-year-old son Dawei in for questioning. Somebody left a note on the door reading: “The hotel is closed.”

For months, U.S. and British national security officials had been claiming that its quaint 1903 facade offered Beijing’s intelligence services an ideal watchpost on the front edge of an escalating spy war between America and China. Xi Jinping’s intelligence agencies, U.S. officials warned, were going to enormous lengths to acquire information about the supersonic jet, built to penetrate enemy airspace undetected.

The Wangs, now in China, have emphatically denied that their lodge served anybody other than visitors to the hamlet of Unterbach (pop. 478), offering hiking trails and rides on a nearby funicular. Switzerland, a historically neutral country eager to appease both superpowers, took more than a year to weigh the American allegations against the hotel.

In the end, the U.S. laid down a condition: If Switzerland wanted the F-35, the area had to be secure. That meant the Wangs had to go.

The truth of whether the Wangs were small-time innkeepers or a secret weapon in Beijing’s decadelong effort to capture one of America’s most closely protected military secrets may never be known. The case boils down to whether the family was interested in the view from the hotel’s front, or its back.

What’s for sure is a global contest between Beijing and Washington over military secrets is spilling into new and far-flung places.

China’s foreign ministry said in faxed responses that China is a victim of espionage and has always firmly opposed espionage, adding that “relevant parties” should stop smearing China without any basis.

A spokesman at Beijing’s Washington embassy, while unfamiliar with the allegations concerning the remote hotel in Switzerland, suggested it is part of a pattern. “The United States has frequently hyped up ‘Chinese espionage activities’ in order to discredit and suppress China,” he wrote in an email.

For months since the raid in Unterbach, residents have puzzled over the mystery of whether America’s counterintelligence machinery was correct in zeroing in on the quiet hoteliers next door. Why, of all the antique hotels in Switzerland, would a Chinese buyer choose a tumbledown lodge butted against a military airstrip? The first F-35s weren’t meant to arrive until around 2028, and had only ever landed on the airfield once or twice. Is China’s campaign to decode the superjet so extensive that it would send an ordinary-seeming family to purchase a hotel nearly 10 years before its arrival?

“We were very surprised. It sounded like a kind of movie,” said Juck Egli, chief administrator of the nearby town of Meiringen, which houses a museum and a statue of the world’s most celebrated detective, with his trademark pipe and deerstalker hat. “We’re famous for Sherlock Holmes, but this is like the new mystery of Meiringen.”

To piece together the riddle of the Wangs’ picturesque hotel, reporters from The Wall Street Journal traveled by train across Switzerland, pulling land registry and police documents, residency records, and speaking with Swiss, Chinese, U.S. and European officials. Reporters met villagers, neighbors and former employees of the Rössli. Many, though not all, of them see the disappearance of the Wangs as more a tale of American overreach than Chinese spies.

“If secret services were at work, this property purchase would probably be a very clumsy method of obtaining espionage results,” said Kaspar Kohler, the Rössli’s prior owner.

From China, the son, Dawei, told Swiss newspaper Tages-Anzeiger that the hotel’s only problem is a permitting issue and they planned to come back. A graduate of Beijing New Talent Academy, where tuition tops out at $35,800, he later studied at the Swiss Hotel Management School in Montreux, Switzerland.

A former classmate remembers him frequently driving a rented car on weekends with other Chinese students to Italy. His parents, after paying almost $1 million for the hotel, complained about the cost of Swiss labor, the price of fixing its coffee machine and the cold they escaped by spending long stretches home in China.

When the Journal dialed Swiss phone numbers for Dawei and his mother, an older lady speaking in Mandarin picked up, then quickly ended the call. Subsequent calls weren’t answered.

The Swiss Federal Intelligence Services declined to comment in detail, instead sending a section from “Switzerland’s Security,” an annual report. It claims China makes more use of spies embedded as civilians in Switzerland than even Russia: “Their personnel mainly work under cover as scientists, journalists or business people.” The U.S. Embassy said it learned that the hotel had been closed “at the same time as the public.”

The family provided Swiss police a forwarding address in Dragon Villas, a gated community of American-style brick suburban houses on Beijing’s northern fringe, home to newfound millionaires from China’s boom years, as well as North Korean dictator Kim Jong Un’s half-brother Kim Jong Nam—until he was assassinated in Kuala Lumpur in 2017.

The Wangs have since disappeared without a trace. The tables at the Rössli are still set for breakfast service: jars of muesli, dried fruit and downturned coffee cups atop saucers. An elderly neighbor keeps the heating on to stop the pipes from freezing.

Almost the only visitors recently were a traditional dancing troupe, parading through the town ringing bells during a local festival. Their route, which passed the forlorn inn, had a tongue- in-cheek title: “the spy loop.”

The flying supercomputer

The villagers at Unterbach had never heard anything so loud.

For years, sonic booms had echoed across the bucolic village of wood-paneled chalets, whenever European jet fighters took off from the nearby airstrip. The mostly elderly residents had grown accustomed to watching the jets from behind their windows, which the Swiss military soundproofed. Plane spotters often congregated on a nearby balcony, filming videos of the Gripen, the F-5E/F Freedom Fighter and the Eurofighter Typhoon.

But the afterburning, turbofan engine of the F-35 thundered with such force that residents of Unterbach complained it shook their internal organs. Neither the reinforced glass nor their protests were of any use.

Graffiti on a village wall—“NEIN!”—stands near a poster: “We don’t need the F-35.”

At a total cost of $1.7 trillion, the most expensive weapons program in history was designed to make a statement, a flying supercomputer that would give America “total dominance” in any air war. Two decades in the making, it could slip into enemy airspace, evade even the most advanced defenses, pinpoint airstrikes then blast out at supersonic speeds. Pilots nicknamed it “Panther,” because the plane could identify and kill any target before being seen.

Almost as soon as it hit the skies, the Pentagon sounded the alarm to the White House: China was intent on learning its secrets. The National Security Agency documents Edward Snowden leaked in 2015 showed Chinese hackers had stolen terabytes of data on the jet.

Xi had begun enacting reforms that would hugely expand China’s spying structures. In 2017, China passed its sweeping National Intelligence Law, obligating Chinese nationals to aid their government’s spy agencies: “All organizations and citizens shall support, assist, and cooperate with national intelligence efforts,” it read.

The following year, Kaspar Kohler finally found a buyer for the Rössli.

The aging innkeeper had tried for years to find someone who would carry on the traditions of the eight-room hotel until the Wang family stepped forward. In a village without any other proper restaurant, his life’s work was the gathering space for elderly residents sharing early suppers, skiers stopping by for Swiss coffee and schnitzel and pilots or technicians at its diner, whose promotional literature read: “Here the boss still cooks himself!”

The Wangs registered their new property in their son Dawei’s name, and took up a mountain-view suite. Cleaners and receptionists could keep their jobs, the father reassured them in mannerly German.

Kohler wanted to show them around the kitchen on one of their first mornings, to teach them his Swiss recipes. Instead they came down and sat in the breakfast area, waiting to be served.

“They were not even able to crack open an egg,” one worker said. After a few weeks, Kohler left the Rössli, deflated, without a proper goodbye, and handed the keys to the Wangs—who, to villagers’ dismay, promptly closed its restaurant.

Mr. Wang smoothed it over by introducing himself to the village, undertaking modest upgrades such as painting the window shutters and furnishing a modest breakfast counter, offering bread and cereal. Visitors were arriving in a trickle, not a flood, often leaving complimentary reviews: “Kind family.” “Very friendly host!”

Villagers noticed the family would travel back to Beijing for long periods, including over Christmas holidays, the most lucrative time of year. Asked where he picked up German, Wang Jin told his new neighbors that he had grown up the son of a diplomat serving in Germany and Switzerland.

Of the four diplomats named Wang who served in Switzerland during Wang Jin’s childhood, two were military attachés, according to local archives. Of the two who served in West Germany, one left abruptly after five months, citing medical leave. The second arrived in 1969 as a reporter for the Chinese state news agency before working his way up to ambassador.

Many Chinese diplomats in Bern in the 1950s and 1960s were spies, who made the city a hub for espionage operations of the new Communist Chinese government in Europe, said Ariane Knüsel, a Swiss scholar and author of the book “China’s European Headquarters: Switzerland and China during the Cold War.”

For China, neutral Switzerland was the most important diplomatic destination in Europe during the years after China’s 1949 revolution, Party and state press say. When the People’s Republic of China’s first ambassador to Switzerland, Feng Xuan, returned home, he became deputy director of what is now the Ministry of State Security, according to Party-run media accounts.

By the time the Wangs were running the Rössli half a century later, Swiss security officials were reporting that the ministry had dramatically boosted its operations in the country. Several Chinese citizens deemed to be spies by Swiss authorities have been caught in recent years, most asked to quietly leave, Swiss intelligence experts say. They include one referred to in files as “Mr. T”—a student at Zurich’s elite science university, ETH—who was paid in cash by the Chinese embassy in Bern.

As the years ticked by, the Rössli’s longtime employees left, frustrated with the inn’s decline and annoyed at being asked to cook meals for the owners, using Chinese ingredients whose instructions were in Chinese. By 2020, new workers were arriving from China, and some didn’t have residence permits. Outgoing employees learned that, apart from the son, the Wangs lacked residency, and came and went on tourist visas.

Swiss diners, punctilious about their local preferences, were complaining: The bread at breakfast came from the supermarket, not the bakery. When one neighbor stopped in for a coffee, he was shocked that the son, after graduating from an elite hospitality school, didn’t prepare café au lait in the Swiss fashion.

“He put cold milk into a normal coffee instead of heating the milk first,” the neighbor said. “It is a pity.”

A far more serious complaint was being examined inside America’s embassy to Switzerland.

A country that hadn’t been dragged into a foreign war since Napoleon’s defeat at Waterloo didn’t seem to appreciate the gravity of the espionage threat U.S. intelligence and defense officials saw in the tumbledown hotel.

In 2018, the U.S. and Switzerland had begun discussing the labyrinthine terms of a deal that would put the F-35 on the airfields of a neutral country. Swiss voters had rejected buying relatively affordable Swedish jet fighters in a 2014 referendum; the money would be better spent on education, campaign organizers said. Aircraft retirements in the years that followed, plus three planes that crashed into Swiss mountains or in France, left the country with few ready jet fighters with full-time pilots. Their navigation equipment was so rudimentary, in some cases lacking even GPS, that in July 2019, an entire Swiss air patrol team accidentally flew over a yodeling competition, interrupting the festivities and causing a scandal in the local press.

That same summer, the U.S. descended on Unterbach to show off a better plane.

Screeching through mountains, a gunmetal gray F-35 rolled to a stop next to the Rössli, then took off again, with a roar that shook every window in the village. Spectators by the dozens trampled overgrown grass, thronged a nearby roof, or climbed a step ladder to catch a glimpse.

They weren’t the only ones intrigued. As the Swiss interest in the F-35 grew, U.S. intelligence officials and diplomats based in Switzerland began repeatedly warning that Chinese intelligence personnel, based under diplomatic cover in the lakeside city of Geneva, were attempting to gain information on U.S. jets, a senior U.S. official serving at the time said. Reports reached the ambassador that the Swiss weren’t taking those concerns seriously: The Swiss Federal Intelligence Service has only about five people dedicated to China, said Ralph Weber, a China expert and Mandarin speaker at the University of Basel. “The Swiss-China politics is just about not angering China in any way,” he said.

In 2020, Swiss voters approved a new referendum to budget the money needed to purchase F-35s—by just 9,000 votes. As the Swiss began ticking through requirements to buy the warplanes, a third referendum to stop it nearly went ahead, then was scrapped. Finally, in 2022, Switzerland agreed to spend 6 billion Swiss francs, or $6.65 billion, for three dozen F-35s, scheduled to arrive in 2028, the largest military procurement in the country’s history.

There was still an important requirement U.S. officials felt the Swiss weren’t taking seriously: security around the airfield.

U.S. officials responsible for aircraft sales traveled to Unterbach and made requests, including that screens be built around the runway. On the airport’s roof, hobbyist plane spotters would often show up, told by friends in the Swiss Air Force when combat planes were scheduled to fly. That was also a risk.

In America, air bases generally prohibit photographing jet engines, for fear that an adversary could reverse-engineer them. Even seemingly ordinary aspects of the F-35 were classified “top secret,” including the helmet, which processed data collected by the aircraft. But Switzerland, a member of neither the European Union nor NATO, didn’t have the same classification system as the U.S.

More pressingly, the Rössli needed new ownership; a Swiss family had been, at one point, trying to buy it, “but they didn’t get the loan from the bank,” said Simon Zumbrunn, a local egg farmer who sits on the village’s Unterbach Aerodrome Commission. He believes the Chinese family was innocent.

U.S. meetings with sympathetic counterparts in Swiss intelligence came and went without commitments. The British followed up with their own meetings, discussing the Rössli and growing frustrated that Swiss national security officials seemed reluctant to broach the subject with their political leadership. U.S. officials argued that under China’s 2017 national security law, the Wangs, should Beijing ask, would be required to help gather information on the jet.

Swiss officials said they took the concerns seriously—but had to raise them to a political leadership perplexed by America’s campaign, now focusing on the forlorn hotel. The U.S. had no hard proof that the Rössli was a spying operation, a senior Swiss official said—only that it could be. “You’re never going to know,” he said.

In 2023, the frustrated U.S. ambassador sharpened his warnings. If the F-35 was meant to be based in Unterbach, then Unterbach had to be secure.

Months passed without action. Finally, late last summer, as backpack-clad hikers thronged the trails, a group of civilian policemen arrived midmorning at the Rössli. There were no cordons and no commotion. The cantonal police arrived shortly after and began searching the property. The elder Wangs were taken away in handcuffs, then fined $5,400 for mostly minor violations of Switzerland’s Hospitality Industry Act, among them: “mopping the floors and tables, and watering the garden in the Rössli without having the proper work permit.”

Wang Jin later came back to apologize to neighbors: They were sorry for any inconvenience and would be heading back to China for a while. He left the keys with a neighbor, and a request—“keep the pipes warm”—a villager said.

Not long after, an online ad circulated listing the hotel for sale for $1.8 million. In January, the Unterbach Aerodrome Commission received word that a buyer had emerged: the Swiss military.

Terms were undisclosed.

Cosmos-2553 went into orbit in February 2022 just weeks before Russia invaded Ukraine

WASHINGTON—Russia launched a satellite into space in February 2022 that is designed to test components for a potential antisatellite weapon that would carry a nuclear device, U.S. officials said.

The satellite that was launched doesn’t carry a nuclear weapon. But U.S. officials say it is linked to a continuing Russian nuclear antisatellite program that has been a growing worry for the Biden administration, Congress and experts outside government in recent months. The weapon, if deployed, would give Moscow the ability to destroy hundreds of satellites in low-Earth orbit with a nuclear blast.

The satellite in question, known as Cosmos-2553, was launched on Feb. 5, 2022, and is still traveling around the Earth in an unusual orbit. It has been secretly operating as a research and development platform for nonnuclear components of the new weapon system, which Russia has yet to deploy, other officials said.

Russia says that the spacecraft is intended for scientific research, a claim U.S. officials say isn’t plausible. Though the U.S. has been aware that Russia was interested in a nuclear antisatellite capability for years, it has only recently been able to better determine the program’s progress, U.S. officials have said.

The eventual weapon, if and when deployed in orbit, could wipe out satellites in a part of space dominated by American government and commercial assets, they said, including SpaceX’s Starlink constellation, which has proven critical for Ukraine’s war effort. SpaceX didn’t respond to a request for comment.

Details about the research satellite, which haven’t been previously reported, clarify a recent frenzy in Washington over Russia’s nuclear space ambitions. It was triggered in February when Rep. Mike Turner (R., Ohio), the chairman of the House Intelligence Committee, issued a cryptic statement about an unspecified “serious national-security threat” to the U.S. and requested that President Biden declassify information around it.

The White House later confirmed publicly that Russia is pursuing what it called a “troubling” antisatellite capability. Officials characterized the matter as a serious concern, though one that didn’t present an active threat to Americans’ safety, as the weapon hadn’t been deployed in space and isn’t intended to attack targets on Earth.

One person familiar with the matter described the launched satellite as a “prototype” for a weapon, but others said the Russian program hadn’t progressed that far.

The Kremlin said in February that reports Russia is developing a nuclear antisatellite system are a fabrication. “Our position is clear and transparent: We have always been categorically against, and are now against, the placement of nuclear weapons in space,” Russian President Vladimir Putin said that month.

The U.S. and Japan sought to put Russia on the spot last month by asking the United Nations Security Council to vote on a resolution affirming the 1967 Outer Space Treaty, which bans putting nuclear weapons in orbit. Russia vetoed the resolution, saying it failed to go far enough by not banning all types of space weapons.

U.S. efforts to discuss its concerns about the antisatellite program directly with Russian officials have also been rebuffed, U.S. officials say.

A Russian rocket launched Cosmos-2553 into orbit 19 days before Putin ordered his military to invade Ukraine on Feb. 24, 2022. The spacecraft was “equipped with newly developed onboard instruments and systems for testing them under conditions of exposure to radiation and heavy charged particles,” Russia’s Ministry of Defense said, according to the state-controlled TASS news service.

Assistant Secretary of State Mallory Stewart, in public remarks earlier this month challenged that explanation, without identifying the specific satellite.

“The orbit is in a region not used by any other spacecraft—that in itself was somewhat unusual,” she said, speaking at the Center for Strategic and International Studies, a Washington think tank. “And the orbit is a region of higher radiation than normal lower-Earth orbits, but not high enough of a radiation environment to allow accelerated testing of electronics, as Russia has described the purpose to be.”

Stewart said the U.S. “has been aware of Russia’s pursuit of this sort of capability dating back years, but only recently have we been able to make a more precise assessment of their progress.”

Cosmos-2553 is still in orbit, according to professional satellite trackers. Spokesmen for the U.S. intelligence community and the National Security Council declined to discuss the satellite or its relationship to Moscow’s antisatellite program.

U.S. intelligence officials have had concerns about Russia and Chinese space capabilities for decades, and have long viewed satellites as a vulnerable target in the event of a major conflict with either adversary. But those fears have grown more urgent in recent years as satellites have grown more integral to military capabilities and global communications systems.

The Pentagon has become increasingly reliant on commercial satellites, which unlike military and intelligence spacecraft, aren’t typically hardened to withstand intense radiation from a nuclear blast.

A Russian antisatellite nuclear device could be used to threaten spacecraft in low-Earth orbit, where U.S. companies and government agencies operate more satellites than any other country. As of the end of April, there were almost 6,700 American satellites operating in this part of space, according to space-data firm LeoLabs. China had 780 satellites there, while Russia had 149.

Most of the U.S. satellites are part of SpaceX’s Starlink satellite-internet network, while other companies have devices that capture data about activities on the ground. The Space Development Agency, part of the Space Force, is developing a new network of satellites to provide missile tracking and other military services in low-Earth orbit, generally defined as an altitude of no more than about 1,200 miles.

“This is the Cuban Missile Crisis in space,” Turner said of Russia’s plans in a recent interview.

For Pentagon officials focused on space, having swarms of satellites closer to Earth adds resilience, because if an adversary took out any single spacecraft, the overall network would still operate and provide capabilities to the military. But a Russian nuclear antisatellite device could change that equation.

John Plumb, a departing top space policy official in the Pentagon, said that use of the weapon would destroy or damage satellites that aren’t hardened against a nuclear detonation. He said the weapon could render low-Earth orbit unusable for some period, potentially for a year.

A nuclear weapon in space from Russia would be an “indiscriminate weapon,” Plumb recently told Congress. Such a weapon “doesn’t have national boundaries, doesn’t determine between military satellites, civilian satellites or commercial satellites.”

The German industrial giant said its group-level outlook for the year to September remains unchanged, with comparable revenue growth still expected to range from 4% to 8%

Siemens SIE 1.33%increase; green up pointing triangle cut fiscal 2024 guidance for its closely watched digital industries unit, citing a slower-than-expected recovery in its China automation operations, but raised its forecast for the smart infrastructure division.

The German industrial giant said Thursday that its group-level outlook for the year to September remains unchanged, with comparable revenue growth still expected to range from 4% to 8%.

In the group’s digital industries, comparable revenue is now projected to fall by 4% to 8% in fiscal 2024, against previous expectations for a rise of up to 3%. Siemens now forecasts profit margin for the division of 18% to 21%, down from 20% to 23% previously.

However, Siemens raised the full-year outlook for its smart infrastructure segment and now anticipates comparable revenue growth of 8% to 10%, compared with 7% to 10% previously, and profit margin of 16% to 17%, which it had previously forecast at 15% to 17%.

For the quarter to March, the company made a net profit of 2.03 billion euros ($2.21 billion), compared with EUR3.48 billion for the same period last year.

Revenue fell to EUR19.16 billion from EUR19.42 billion, with declines in its digital industries and mobility divisions offsetting a rise in smart infrastructure.

Analysts had expected Siemens to report net profit of EUR1.67 billion on revenue of EUR19.28 billion, according to consensus estimates compiled by the company.

Paramount: the takeover battle that could reshape Hollywood

The tussle for the venerable studio has been billed as the money men against the creatives, but the outcome may help decide who survives in the streaming era

Yet finding the money for the plants that will make it is proving tricky

Nanna Baldvinsdóttir has become used to being inundated with unsolicited calls after speaking at industry conferences.

The co-founder and chief executive of Icelandic start-up IðunnH2 has something to offer that is in high demand across the aviation industry: plans for a commercial scale, sustainable aviation fuel (SAF) production facility. 

“I get cold calls afterwards,” says Baldvinsdóttir. “I am asked: how much? When?”

How to secure adequate supplies of SAF — low-carbon alternatives to conventional fuels — and at what cost have become two of the biggest questions for the aviation sector as it seeks to reduce its carbon footprint. 

Climate change poses a commercial threat to aviation, which accounts for 2-3 per cent of global carbon dioxide emissions. The sector’s visibility has made it a high-profile target of policymakers and environmental campaigners in recent years. 

“The sector needs to deliver,” says Tim Alderslade, chief executive of industry group Airlines UK. “There is no question that, if we fail to do so, governments will act to make aviation smaller.”

Airlines, aircraft manufacturers and other industry stakeholders have pledged to achieve net zero emissions by 2050 through a mix of new fuel technologies, including the use of SAF and hydrogen, as well as more efficient aircraft and engines.

Airbus, Europe’s aerospace and defence champion, has committed to flying a hydrogen-powered aircraft by 2035. The plane maker, along with US rival Boeing, is also exploring new aircraft designs. Meanwhile, government-backed initiatives such as the UK’s Aerospace Technology Institute are researching lightweight materials and wing technology. However, breakthrough technologies, such as hydrogen- or electric-powered aircraft, are still years away from being commercially viable. 

In the interim, the industry is looking at other levers to cut emissions. Better air traffic management is one. In the UK, for example, industry stakeholders are forecasting a 4.7 per cent reduction in carbon emissions through airspace changes by the middle of the century. 

Ian Jopson, sustainability director at Nats, the UK’s National Air Traffic Services — and the highest scoring company in this year’s Europe’s Climate Leaders survey — says improvements have already been made by using technologies that can reduce time-consuming holding patterns for aircraft above airports, and optimise the spacing between arrivals. 

“We have these things in our toolkit now,” says Jopson, adding that greater benefits will come from large-scale modernisation of the airspace. 

But the industry is placing its biggest bet on SAF as a way to reduce emissions in the near to medium term. It can emit as much as 80 per cent less CO₂ over its life cycle than traditional aviation fuel and, crucially, is largely compatible with existing engines. 

Last year, Virgin Atlantic became the first commercial airline to operate a transatlantic flight powered exclusively by SAF. And Airbus and Boeing have pledged that their planes will be able to fly on 100 per cent SAF by 2030. 

Looking further ahead, a review of 14 net zero transition road maps by industry group the International Air Transport Association found that they all assume SAF will be responsible for the greatest amount of CO₂ reductions by 2050 — contributing to between 24 and 70 per cent of the reductions needed. 

However, this wide range of possible contributions under the different road maps underlines the uncertainty over securing enough supply at an affordable price. SAF currently makes up less than 0.1 per cent of global jet fuel volumes and is at least three times more expensive. 

Today, the majority of SAF is made from waste such as cooking oil and plants, but other sources include biomass that absorbed CO₂ when it was alive. In the longer term, the industry is also pinning its hopes on scaling up nascent technology to create synthetic SAF by combining CO₂ sourced from the air with so-called “green” hydrogen, which is derived from water using renewable energy. 

Thanks to its base in a country with access to ample supplies of renewable energy, IðunnH2 is promising to have a commercial-scale synthetic fuel facility in operation by 2028. The company will produce its “e-kerosene” by combining green hydrogen with CO₂ from the atmosphere or from an industrial source. Icelandair, the country’s national carrier, has agreed to take up to 45,000 tonnes of fuel from 2028.

So, IðunnH2, which launched in 2020, is already in talks with potential investors to help fund the next phase of development, which will decide the technical requirements and the overall cost of the project. However, despite the demand, funding SAF plants is proving a “bit of a challenge”, Baldvinsdóttir says. 

Airlines are typically not willing to sign up for offtake agreements for the fuel that are longer than 10 years. This makes it difficult to convince investors to back a project, as their time horizons are typically longer. 

Nikhil Sachdeva, global lead for sustainable aviation at consultants Roland Berger, says developing a business case for investors to come in is one of the hurdles for the nascent market. 

“An SAF facility will last up to 20-25 years, but airlines are not willing to sign up for longer than 10-12 year offtake agreements,” he explains. “What happens to the SAF producer when that agreement runs out and the technology has improved? It’s the curse of the earlier mover.” 

Another challenge, says Sachdeva, is that the regulatory landscape is “quite clunky”. 

In Europe, governments are introducing mandates to make airlines progressively to switch to using more SAF, while in countries such as the US tax breaks are spurring production.

In the EU, all aircraft fuel at EU airports will have to be blended with SAFs, starting at a minimum level of 2 per cent in 2025 and being increased every five years to reach 70 per cent by 2050. The UK government published its own SAF mandate earlier this year. 

“The demand is clearest in Europe, with massive fines, but production makes most sense at scale in the US or other regions with cheaper energy,” points out Sachdeva. 

In the UK, for example, investors and fuel companies have complained that they cannot start building SAF plants until the government is clearer on what kind of support it will give. So far, the government has announced a consultation on a “revenue certainty scheme” to guarantee a pre-agreed price for SAF. 

Luis Gallego, chief executive of International Airlines Group, recently welcomed the UK SAF mandate, but warned that “mandates alone are not enough”.

“Now is the time to support critical industries in the transition towards net zero,” Gallego wrote in an article for the FT. “Providing incentives for SAF to scale will in turn attract private sector investment, create jobs — and deliver long-term economic growth.”

TLAC bonds are part of push from international regulators to shore up balance sheets

China’s biggest banks have launched their first-ever sales of a special kind of loss-absorbing debt, moving closer to meeting international requirements designed to avoid repeats of the 2008 financial crisis.

Industrial and Commercial Bank of China is selling Rmb40bn ($5.5bn) of so-called total-loss absorbing capacity bonds this week, according to a filing. Bank of China also launched pricing for its own Rmb30bn sale on Thursday.

The bonds are part of a long-term push from international regulators to shore up bank balance sheets by making them issue instruments that are exposed to losses ahead of other highly sensitive bank liabilities, especially deposits.

China’s banking sector, the world’s largest by assets, has five institutions out of 30 around the world designated as globally systemically important by the Financial Stability Board, an international regulatory body based in Basel.

The banks need total loss-absorbing capacity equivalent to 16 per cent of risk-weighted assets by the start of 2025, according to FSB requirements. TLAC bonds are distinct from capital instruments such as additional tier 1 debt that are similarly designed to take losses.

Fitch Ratings estimated last month that TLAC and other capital requirements for the five banks in China could amount to Rmb1.6bn by the start of 2025, but the total amount banks need to issue could be reduced if the Chinese regulator allows deposit insurance funds to count towards the total.

Vivian Xue, a director in the financial institutions group at Fitch Ratings in Shanghai, said China’s pilot issuance of TLAC was likely to have been delayed by Covid-19 disruptions as well as “market conditions”.

She added that since 2017 most bank capital issuance from China had been within the mainland rather than internationally.

China’s financial system during the pandemic became more closed off from the rest of the world, with cross-border activity declining sharply as relations with the US deteriorated. A prolonged property slowdown has also raised concerns about the wider Chinese economy.

International banks have struggled to remain active in the mainland, where domestic securities houses and brokerages dominate financial markets.

Out of the 18 underwriters on Bank of China’s bond, none are international financial institutions, according to a bond offering circular. ICBC’s offering also lists no international groups.

China’s five biggest banks all posted profits in their quarterly results last month, as well as flat non-performing loan ratios, though their margins showed signs of pressure.

In Europe, losses on AT1 bonds during the failure of Credit Suisse last year led to scrutiny of the regulatory regime and its implications for fixed-income investors.

The bank was removed from the FSB’s list of global systemically important financial institutions. China’s Bank of Communications was added in November.