Bone of contention

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Maurizio Anichini, co-founder and chairman of Bangkok-based aviation training and consulting company Twiga Aero, shares his views on the Standard Ground Handling Agreement (SGHA) of the future

Airlines are outsourcing more than 70% of the global services and the trend continues to grow. Their business model continues to evolve as they focus on core activities. Being ‘lean’ means more outsourcing at all the outstations and in many cases the main hubs also fall under this category. This creates complexities in the partnerships between airline and GSP (ground service provider). The airline has greater demands in terms of on-time performance (OTP), mature safety management systems and shorter turnaround times to optimise aircraft utilisation.

Currently, a contract is established and the SLA (service level agreement) follows suit, often well after the SGHA is signed. ‘Scope creep’ sets in when local airline managers attempt to implement their headquarters’ view whilst trying stretch the requirements by putting pressure on the GSP for more equipment, less time, more staffing etc.

This results in several challenges that make it a struggle to keep up standards. The GSPs tend to accept stringent terms in order to win business, though they know they may face difficulties in fulfilling the contractual requirements. The airlines know that GSPs will accept harsh SLAs with severe penalties.

The GSPs, meanwhile, get the business and then realise they’re not making any profit – but they want to keep their customer. Some GSPs even take on clients knowing they will make a loss.

The elephant in the room

By outsourcing over 70% of their services the airlines have thrown their focus onto their core activity – and, more and more knowledge has been transferred to the GSPs. Therefore, the knowledge across the negotiating table is not as detailed, so the contractual demands are made by people who don’t really understand the operational environment.

Airlines are trying to regain control of GSPs through contracts and service level agreements that involve sanctions. Furthermore, AGSA (IATA’s Aviation Ground Services Agreements Task Force) is working on the 2018 version of the IATA ‘yellow pages’ and it is anticipated that these will become an integral part of the agreement in 2018. They will likely include clauses relating to consequential loss, which would mean that GSPs would be asked to pay for damage to aircraft – with the maximum liability going up dramatically from its current level of US$1.5 million, and potentially becoming unlimited.

The cost of an aircraft being grounded for an extended period of time, and the specialist engineers required to repair it, could run into tens of millions of dollars. Airlines are insured to cover that sort of amount but the GSP is accountable for the first $1.5 million.

It took three decades of negotiations to get the current SGHA in place, being equitable towards everyone it affects. Having everyone sign up to the new agreement, with GSPs being liable for consequential loss, simply can’t happen.

If GSPs did accept more liability, their insurance premiums would go up, which would mean that they would not be able to provide their services at the originally agreed price. Airlines would be forced to accept very high fees for their turnarounds. Or, in some cases GSPs may cut back on critical areas and could even end up damaging aircraft more easily.

The ramifications of ground damage as we will come to find it (that is, as more composite aircraft come on line) will be a big point of contention.

Solutions

The SGHA is one of the critical elements for our industry going forward. Transparency when coming to the negotiations table is key. Airlines need to understand the challenges the GSP faces in terms of safety, security, quality output, OTP and so on. Preparation of a contract must include specific performance parameters in respect of operations, safety, quality and security, and cannot simply focus on the cost of services and volume discounts.

In the end the solution is not to continue to over-insure. Insurance brokers are very happy when damage occurs because they can push up the premiums. It’s about prevention, which lies in the relations between parties and the ability of GSPs to deliver services with a proven track record of being truly conscious and conscientious. For all the systems, audits and efforts, implementation of Standards and Recommended Practices (SARPs) is only at 65% globally according to ICAO statistics. The International Civil Aviation Organization has had a hell of a time trying to convince countries these standards must be implemented.

There is now some discussion about a non-IATA SGHA. This is not the first time it’s been heard, and it’s been brewing slowly. The airlines are attempting to control GSPs through very harsh means, getting them to do more for less – which is not realistic. A non-IATA SGHA would likely take the IATA one into account: it wouldn’t throw the baby out with the bath water. But the level of liability would need to be commensurate with what the industry can sustain.

There has been a shift of power and the airlines are not always holding the reins. The possibility for a non-IATA SGHA exists now; the dynamics are in play and the GSP industry is mature enough. But whatever comes out of this will take the industry forward. GSPs are interested in doing business, growing their company and their market share – everyone is striving for the same thing.

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