Nacho Tovar, the head of airline group IAG's investment arm, says the new €200m fund could unlock efficiency and a sustainable future for the industry.
No one can accuse International Airlines Group (IAG) of being complacent. The company, which owns flag carriers British Airways and Spain’s Iberia, is one of Europe’s most profitable airline groups, earning €2.7bn after tax in 2024, ahead of rivals Ryanair and Lufthansa. To ensure it can stay ahead, however, earlier this year it ramped up its corporate venturing activities, setting up a new CVC unit with a €200m ($227m) fund to be invested over the next five years.
“It is easier to launch this kind of vehicle when your [parent] company is one of the most profitable airlines,” Nacho Tovar, head of the recently formed IAGi Ventures, told GCV.
IAG has been taking minority stakes in startups for years, but without a fixed fund size or cadence to the investment. Now it is committed to €40m a year for the next five years, and Tovar, who worked for a tech VC firm before joining Iberia in 2017, is bolstering the team with members who have venture capital experience so that the unit adds a Silicon Valley mindset to its expertise on the aviation industry.
“If you compete with not just corporate VC, but [also] the big players around VC, you need to understand valuations, deals, convertible loans, this kind of language,” he says.
AI and automation
Since the pandemic, costs for the airline industry have been creeping up, according to data analysed by the International Air Transport Association, a trade association. This puts a premium on improved efficiency, which two of the fund’s focus areas, AI and automation, might be able to deliver.
Tovar says that the fund will target AI startups at the application layer with “a vertical proposition around aviation”. These could, for example, be used to improve processes on the ramp – the area where an aircraft is loaded, boarded and refueled. A successful example of this from the company’s former accelerator programme, Hangar 51, is Assaia, a startup that uses AI to analyse a live video feed of the procedures preparing a docked plane for its next flight against the schedule. It has been run for British Airways planes at Heathrow since 2019 in an effort to improve turnaround times.
Automation is closely related to AI. Currently, Tovar says, the airline industry lags behind other sectors in implementing it.
“It is still far away from other industries like retail [and] logistics,” he says. “If you go to a fulfilment centre, there’s a lot more automation over there.”
It could also improve procedures on the ramp, for example with robotic automation of the fueling process. But Tovar also says it could make a difference across airports, with their “orchestra” of moving parts. Loading cargo, connecting bags to the correct flights, speeding up the boarding process and helping passengers make their connecting flights could all be made easier with AI or automation.
Making sustainable aviation fuel
While automation might help to shave down costs and improve reliability, the fund also has its sights on a more existential threat to the sector.
The aviation industry is currently thought to contribute to 2.5% of global CO2 emissions, and 4% of global warming to date when non-CO2 sources are accounted for. The industry plans to rely on sustainable aviation fuel (SAF) to help it reduce carbon emissions enough to make reaching net zero by 2050 manageable.
Tovar says the ultimate goal is to reach third-generation SAF, generated from captured CO2 mixed with green hydrogen. The venture fund will invest in technologies that improve the synthesising techniques.
“I strongly believe we could be the best VC of our kind in the world.”
“We need to speed up the technology,” he says. “The technology to have third-generation SAF available at the right price is [what] we are working towards.”
While the CVC unit focuses on investing in SAF initiatives, IAG is lobbying the UK government to make the transition to SAF less painful for airlines, and to encourage investment in new SAF plants.
The government recently mandated airlines to use SAF for 10% of all their fuel by 2030. IAG says it used just under 2% in 2024. With SAF, as with AI and automation, the group has used a startup partnership to experiment with what works. In 2021, British Airways invested in LanzaJet, which has built the world’s first commercial-scale plant converting bioethanol to fuel, an example of second-generation SAF.
Looking further afield
IAG will continue to run the accelerator programmes it has for startups that are not yet ready for it to invest in. The Hangar 51 accelerator has been rebranded as IAGi Accelerator, and will contain two tracks. A 12-week programme will focus on technology that it can start to deploy among the business units to meet specific business needs, while a 24-week programme will support earlier-stage startups developing promising new technologies.
Beyond AI, automation and SAF, Tovar says the IAGi Ventures fund will also invest in connectivity and IoT, as well as quantum, cloud and cybersecurity.
“We need to be on top of everything that is happening in cybersecurity,” he says. “Even more [so] with new systems like quantum and AI. There’s much that we can do with AI to build these cyber layers.”
Soaring ambition
Innovation in the aviation industry is not necessarily easy. The priority of airlines and airports is always safety, which can make implementation of new technologies slow.
Increasing pressure on airlines’ bottom lines can also make them less willing to fund corporate venturing initiatives, as seen recently when struggling US airline JetBlue spun out its CVC unit, JetBlue Ventures, so that it could focus on returning the core business to profitability.
But Tovar is optimistic that IAG’s new fund can rise to the challenges. He sees aviation as an area that has so far not sufficiently exploited tech innovation.
“There are not so many airlines with the right approach or the right ambition around investing in technology,” he says.
“I strongly believe we could be the best VC of our kind in the world.”
