An airport ramp is a dangerous place. It can be extremely busy at peak times, and can be the workplace for large numbers of people and some very heavy equipment. Work can be going on there at night and in dreadful weather conditions. Not altogether surprisingly, perhaps, damage to equipment and to aircraft is thus not that uncommon, while there is also occasional injury to airside operators.
The resultant financial costs alone are huge. Alexandria, Virginia-based Flight Safety Foundation (FSF) – an independent, non-profit organisation that is dedicated to provide expert safety advice and resources for the aviation industry – has estimated that “ramp accidents cost major airlines worldwide at least US$10 billion a year”. It also estimated that nearly 30,000 ramp accidents – approximately one for every thousand aircraft departures – occur around the world each year.
Of course, there are wide regional variations. Perhaps unexpectedly, the situation seems to worsen in regard to frequency of ramp incidents “the further west you go”, says Ivar Busk, manager SAS Group insurance and a man with plenty of experience of analysing ramp accidents and their many implications. Maybe it’s the culture in the UK and across the Atlantic in the US, but accidents on the apron are far less commonplace in locations such as Japan and Eastern Europe.
But for any party that is active airside, wherever they operate, ramp insurance coverage is vital. Airlines and airports require the appropriate aviation insurance to protect them in case of damage to aircraft or airport facilities caused by their own actions, while handlers also cannot operate on the apron without proper coverage. As Stewart Sinclair, managing director of Bangkok Flight Services (BFS, part of the WFS – or Worldwide Flight Services – group of companies and a ramp, passenger and cargo handler at Bangkok’s Suvarnabhumi International Airport), attests: “We could not operate airside without proper coverage and it is imperative for us to have the correct and appropriate insurance to mitigate our risk.
“We have aviation liability covering all actions airside, including driving equipment, and all activity around the aircraft,” he continues. “In addition, we have third-party liability to cover personal injury for our staff and third parties, plus the usual third-party liability for driving incidents airside and landside and third-party coverage in any of our facilities. Additional insurances depending on local conditions that cover workers’ compensation and so on.”
According to Sinclair, thankfully for BFS and other handlers, the number of incidents against which they claim is “relatively low”. The busier airports may have higher rates of accident, especially those with high-density peak times and a requirement for fast aircraft turnaround times, all of which puts additional pressure on day-to-day ramp operations.
Alexander Stern, managing director of Lufthansa LEOS (Lufthansa Engineering and Operational Services) – which provides ground handling services such as airport towing and has operations at Frankfurt-Main, Düsseldorf and Munich International Airports – points to a real concern for many handlers, especially those small sub-contracted handlers operating in niche business areas on the ramp: they are still required to have insurance coverage and, according to International Air Transport Association (IATA) standards, this can be prohibitively expensive for some of them.
He is in a more fortunate position than some handlers in that Lufthansa LEOS, as part of the wider Lufthansa group (it is actually a 100 percent subsidiary of Lufthansa Technik), is covered under the wider umbrella insurance coverage of Germany’s flag-carrier. Yet Lufthansa LEOS still must pay its share of the cost, and therein lies Stern’s biggest bone of contention: that while his claims against the policy are steadily falling, the cost of the premium is not.
The cost of the premium certainly rises and falls, he explains, but largely in response to factors beyond Lufthansa LEOS’s control, such as the rise and fall of financial markets. During the last five years in which Stern has been at the controls at the handler, its safety record has improved significantly but this has not been mirrored in the costs of its liability coverage, he insists.
It is an issue for all handlers. Stewart points out that BFS meets with its insurers every year to review past claims with a view to decreasing future premiums based on a favourable claims history. Unlike Stern, however, Sinclair has seen BFS’s premiums decrease in recent years, as a result of a decline in the cost of claims made.
Extensive liability
A handler must insure itself against all sorts of liability. Wide-ranging coverage typically includes not only protection against damage to aircraft and equipment and personal injury, but might extend to such potential dangers as environmental damage caused during ramp operations. Lufthansa LEOS also has product liability insurance in its role as a tooling service provider, while at stations such as Düsseldorf – where it acts as a sub-contractor to another handler – its liability is limited and is basically covered by the handler for which it is working.
For Stern, minimising damage on the ramp is a critical objective in and of itself; if this means lower insurance premiums, so much the better, but the important thing is to ensure as little injury or damage as possible resulting from day-to-day operations. Hence his insistence on everyone at Lufthansa LEOS constantly being aware of the “cost of non-quality” in their actions.
Moreover, the costs of unwanted airside collisions are not always obvious, he points out. Repair to an aircraft or GSE has to be paid for, of course, but there are also opportunity costs to consider. An aircraft sitting on the ground – and thus not in revenue service – while undergoing repair represents a huge opportunity cost, and the potential impact on an airline of lacking sufficient capacity as a result is not truly covered in any insurance policy, whether the airline’s or the handler’s, Stern insists. This more latent cost is sometimes known as ‘consequential losses’, defined by IATA as those costs relating to passengers and crew incurred within 72 hours of the incident that include: compensation; the internal cost of investigation and claims administration; delay of services; revenue loss; crew changes; and cost of transportation on other carriers.
Of course, there is much that can be done to minimise the frequency of unwanted incidents on the ramp. For WFS’s Sinclair, congestion is an important issue to be addressed in this regard, as are training levels, oversight, the quality of the employment pool available to an airside operator and the pressure on handlers to constantly reduce ground turnaround times.
Training is vital for all those active on the apron, as is a clear system of feedback when something does go wrong, agrees Stern. Incentivising employees to take the utmost care as well as to own up to things when they go wrong is critical, he notes. Furthermore, he sees good cause for being positive given that the quality of GSE is improving all the time as new safety features are added; at Lufthansa LEOS, such improvements include the installation of cameras on the rear of airport buses so that drivers can see what’s behind them, while other generally available features that can help greatly with airside safety include proximity sensors on GSE that can come into contact with vulnerable aircraft fuselages, and various systems that significantly improve awareness and communication for operators of tugs and other vehicles on the ramp.
We should also learn from previous incidents and accidents, which is where ground damage databases come in. “It is much better to share information about incidents than have to learn the hard way each time,” Sinclair points out.
Affordable insurance
Various national associations representing handlers have had their say in trying to improve the local market for insurance provision covering ramp operations and, in particular, making it affordable for cash-strapped handlers. One such is Germany’s Vereinigung der Dienstleister Flughafen (VDF), the Stuttgart-based Association of Service Providers at German Airports that represents some 70 companies performing ground handling services across the nation’s gateways and that represents them in both Germany and, at the European level, in Brussels.
According to Klaus Knöpfle, the VDF’s chairman, it has campaigned hard to ensure that service providers should be represented as well as airlines and airports and that it be made clear that many of these smaller companies cannot afford the same high costs of insurance that had previously been expected of all involved, including the much more wealthy airport authorities.
“Danger is all around on the apron,” he observes, “and despite the best training injuries can happen. But service providers must be able to afford the insurance provision and the coverage must relate to the services provided. We (represent) a lot of mid-sized companies and their (finance) is limited. But they should have the opportunity to work on the apron and the provision of services shouldn’t be limited to big companies that can afford to pay huge amounts for insurance.”
The airline’s point of view
An airline’s insurance premium will depend on many factors – what is covered under the policy, the carrier’s fleet size and value, its frequency of departures, time spent in the air, accident record and so on. The nature of the financial markets will affect airlines’ premiums as much as it does handlers’. Thus, for example, premiums went up in the wake of 9/11; they have only just returned to roughly pre-9/11 levels now.
As has already been noted, the cost to an airline of any damage to its aircraft is large, and most of that cost is hidden. SAS’s Busk believes that the ‘loss of use’ of a damaged aircraft can be between four and ten times as much as the cost of repairing the damage. He suggests that an important development would be a model for calculation of ‘loss of use’ for airlines.
For carriers, he suggests, it is vital to have “an efficient system of assessment and claim recovery”. And a vital part of this is consideration of all elements of insurance liability when agreeing contracts with a ground handler; he notes that, all too often, carriers only include an indemnity clause which only covers physical costs and which is limited in relation to the degree of negligence involved in the cause of damage.
An airline’s own insurance (hull) policy will normally only be activated if the loss is caused by the carrier itself, Busk points out, again noting that ‘loss of use’ is unlikely to be covered. He suggests that carriers should be stronger in their negotiations of contracts with third-party service providers as regards liability and indemnity clauses, while observing that once many airlines come to realise the true costs associated with an aircraft’s ‘loss of use’, they might be much more diligent in terms of preventing incidents on the ramp in the first place.
Busk also suggests that carriers could collaborate more, sharing knowledge with a view to maximising compensation wherever possible after accidental damage has been caused and a claim needs to be made. It is vital that airlines treat the issue of ground damage seriously; not only because of the high cost of repair bills and ‘loss of use’ but – with the costs of damage on the ramp caused by handlers normally being subsequently included in turnaround charges to their carrier customers – “the whole cost of ground damage is paid directly or indirectly by the world’s airlines,” he argues.
Addressing the issues worldwide
In recent years, there has been much greater focus on safety throughout the aviation industry and this has resulted in many initiatives promoted at a global level, such as the ISAGO (IATA Safety Audit for Ground Operations) programme and, soon, the IGOM (IATA Ground Operations Manual) initiative, which – says Sinclair – “will continue to simplify processes and procedures and drive complexity out of the business.
“Currently we have many different processes from different customers; ISAGO and IGOM aim to simplify these so that our staff do not need to operate with different procedures for each airline,” he enthuses.
The influence of supranational aviation bodies on the complex issues associated with airside insurance coverage has been mixed. According to the International Civil Aviation Organization (ICAO), Annex 14 to the Chicago Convention, which covers all those aspects of airside ground operations that are currently standardised, contains no guidance on insurance-related requirements. ICAO would therefore have little role to play, a spokesman confirms.
However, IATA is much more concerned with the issues. Indeed, it is Article 8 of IATA’s Standard Ground Handling Agreement (SGHA) which says a handler “shall indemnify the carrier against any physical loss or damage to the carrier’s aircraft caused by the handling company’s negligent act of omission” (up to a certain financial level), that tends to guide a carrier-handler contract in this area.
Right now, IATA is particularly interested in the issue of insurance premium affordability. As a representative of its member carriers, a spokesperson for the Association points out: “Airlines pay for all damage on the ground, directly or indirectly. They need to monitor what insurance their ground providers have, particularly now that most ground operations are outsourced to third parties. Many airlines require their service providers to hold US$300 million in aviation insurance, although others require much less.”
Reflecting how seriously it views the topic, there are ongoing discussions at IATA about the many issues relating to airside insurance liability. It has standing bodies that address the subject; thus, the role of IATA’s Risk and Insurance Management (RIM) department and IATA’s RIM Working Group is to ensure that airlines require ground handlers to purchase enough insurance to pay for any damage or injuries that occur. The role also includes making sure that the risks inherent with ramp operations are effectively managed by all the parties involved.
As for the future, IATA has proposed an ‘Integrated Ground Ops Solution’ to assist in reducing the frequency of damaging incidents on the ramp and improving performance. “This solution means using risk management as the glue that holds these components together: ISAGO, IGOM, the Airport Handling Manual (AHM) and the GDDB (Ground Damage Data Base),” the Association asserts. “The only way to prove that damages are actually being reduced and that performance is improved is to link all of these together via risk management.”
There has been a lot of progress made in the last few years that has brought about a recognition that “everyone is in this together”, IATA considers. “But, there’s still room for improvement. The best way to help airlines incur fewer losses and injuries in ground operations is to manage the risks better. It’s as simple as that. The service level agreement is another source for managing the risk. This means a focus on rewarding safe, quality work more than on-time performance,” the spokesperson insists.
Worrying trend
Whether you consider the number of accidents on the ramp is high or low as a proportion of aircraft departures, a worrying trend is that – at least according to some statistics, such as the FSF’s – that proportion is growing. Many elements may be responsible – time pressures, lack of investment (despite the better technology and safety features on GSE now available), heavy congestion at many airports, national culture, the comparatively low status and low pay of ramp handlers having an impact on morale – but what is clear is that each and every airside operator is going to need those insurance policies right up to date and comprehensive in their coverage.
Certainly according to Busk, it is only the potential financial cost element that will really cause a handler to implement genuine accident prevention measures within its daily operational routine. If the consequent premiums are high, perhaps that is the price the industry is going to have to pay, at least for the moment.
Airline insurance buyers in a good place
Insurance as it relates to ramp operations is of course just one factor that has to be taken into account for a carrier’s overall liability. However, there is some good news for airlines in this regard, at least according to one broker. Abundant capacity, high levels of competition, limited loss activity and an aggressive broking community will benefit airline insurance buyers renewing in the final quarter of 2013, according to a report from Willis Group Holdings, a global risk adviser, insurance and reinsurance broker.
“Insurers’ desire to participate on the world’s blue chip airlines will continue to keep competition in this area high,” says Phil Smaje, CEO of Willis Aerospace. “The consolidation that has taken place in recent years has created a smaller number of very large programmes of significant interest to the market.”
Another factor expected to accelerate the slide in premiums is the industry’s safety record which, despite some losses, remains very good. Total hull losses in the airline industry between January and October this year amounted to a value of approximately US$615 million, the report suggests. Meanwhile, liability losses in the same period were of the order of $226 million. Willis estimates that overall insurance losses in the airline sector in 2013 will be $1.2 billion, including a pro-rata estimate of “attritional losses”.
“Despite many believing the market couldn’t go any lower than it has in recent years, the low loss levels, plentiful capacity and growth in exposures will continue to provide ideal conditions for buyers and challenges for underwriters,” Smaje concludes.
