Air can be dissolved or entrained in hydraulic fluids. For example, if the return line to the reservoir is not submerged, the jet of oil entering the liquid surface will carry air with it. This causes air bubbles to form in oil. If these bubbles rise to the surface too slowly, they can be drawn into the pump intake, leading to cavitation and subsequent pump damage.
Similarly, a small leak in the suction line can cause entrainment of large quantities of air from the atmosphere. This type of leak is difficult to detect since in this case air leaks in, rather than the oil leaking out from the suction line. Another adverse effect of entrained or dissolved air is a significant reduction in bulk modulus of the hydraulic fluid. This can have serious consequences in terms of stiffness and accuracy of hydraulic actuators. The amount of dissolved air can be significantly reduced by properly designing the reservoir, since this is where most of the air is picked up.
Another method is to use a premium grade hydraulic fluid that contains foam-resistant additives. These additives are chemical compounds, which break out entrained air and in the process quickly separate the air from the oil, in the reservoir itself.