The global airline ground handling industry is set to see a 30% growth in value by 2020 to almost US$500 million while the global aircraft fuel systems market is likely to reach almost $10 billion by the same date. Also in this period, the baggage handling system market is estimated to reach $9.36 billion, seeing an increase of some 30% as well.
These headline predictions come from a 165-page report, Aircraft Ground Handling System Market, produced by US-based MarketsandMarkets, a global market research and consulting company and a business intelligence partner to Fortune 500 companies across the world.
The report’s authors describe handling management as broadly comprising those services required by an aircraft between landing and take-off. Its analysis to 2019 says: “The global aircraft ground handling system market is estimated to be valued at $347.50 million in 2014, and is expected to reach $456.76 million by 2019.”
Growth in aircraft ground handling will continue to depend largely on the increase in number of airlines and airports, industry expansion, upgrading of existing airports and technological developments.
The analysis includes application-wise segmentation and product-wise segmentation across mature and emerging markets. The market estimated to have the highest compound annual growth rate (CAGR) is the Middle East, expected to grow at a CAGR of 7.03% by 2020.
The ground handling system markets in Asia-Pacific and Latin America are expected to show consistent levels of growth during the forecast period. Singapore, Malaysia, and Hong Kong are the main airports in Asia-Pacific, where most of the business jet movements occur. These airports are expected to gradually expand due to growing traffic. Infrastructural upgrading will provide more service providers with an opportunity to cater to airlines and business jets across various segments, particularly the ground handling segments, as it generates constant revenue with every landing and take-off.
India and China are highlighted as new growth regions and possess many opportunities for the aircraft ground handling system market because of large populations, increased urbanisation and their vast area, all of which leads to extensive domestic travelling.
The ramp handling segment is one of the largest segments in the aircraft ground handling system market, as it provides services such as aircraft marshalling, parking assistance, aircraft towing, operation of necessary units for engine ignition and safe passenger movement. The ramp handling segment is estimated to increase at a CAGR of 5.62% until 2019.
In Asia-Pacific, the Middle East and Latin America, there is an increase in aviation activity in the form of air travel, expansions, and upgrading. Unsurprisingly, the US represents the largest market for aircraft ground handling systems. The biggest challenges for the aircraft ground handling system market will be the optimisation of operations during peak time, poor quality of equipment, and constant security upgrading by security agencies.
At the same time, the global aircraft fuel systems market is expected to reach $9.15 billion by 2020 from $6.52 billion in 2015, at a CAGR of 7.0%. An aircraft fuel system consists of fuel tanks, pipe work, fuel pumps, fuel gauges, valves, and fuel control monitoring systems. Baggage handling will see greater use of barcode and RFID technology in the period. The market for the barcode segment is estimated to account for 74.64% of the total market in 2015, while the RFID segment is rapidly growing in baggage handling. The baggage handling system market is estimated to be valued at $6.45 billion in 2015. It is projected to grow at a CAGR of 7.72% to reach $9.36 billion by 2020.
Industry observers also suggest that the aircraft de-icing market, over the next five years, will grow significantly too. It is expected to reach $1.30 billion by 2020, registering a CAGR of 5.18%.
Chinese economic woes
The report was published as the financial and business worlds reeled in the latter part of 2015, with the Chinese stock market taking a nosedive and the country’s breathless growth seeming to run out of steam. Market pundits also waited for an uptick in US Fed interest rates.
Where the stock market worries will leave the wider Chinese economy, in particular its appetite for air services, will only be determined as the industry moves into 2016. However, the Chinese economy, which still dominates as the world’s second largest, may prove that deals done when markets fall can sometimes prove to be the canniest.
That might be the outcome of the multi-billion dollar move which saw China’s HNA Group acquire 100% equity in the world’s largest ground and cargo handling services provider, Swissport, in the summer. The Chinese group, founded in 1993 and which has assets valued at over RMB450 billion with 11 listed companies mainly in aviation, paid 2.7 billion Swiss francs ($2.8 billion, 2.54 billion euros) to acquire the multinational ground handler from former owner Paris-based private equity company PAI Partners – which had bought the handler in 2011 for 1.2 billion Swiss francs ($1.23 billion, 1.11 billion euros).
HNA posted 2014 sales of $25 billion, and in recent years has expanded from a regional logistics company to an international player in aviation services and financing, airport management and tourism.
“The acquisition by HNA of Swissport confirms the strategic value of the company as being the worldwide leader and consolidation platform in the still fragmented airport services market,” said Ricardo de Serdio, a PAI partner. “The acquisition by HNA will enable the company to grow in the underpenetrated Asian markets and in China in particular thanks to HNA’s strong roots in the region.”
While the financial mechanisms introduced following the banking and liquidity crisis of 2008 to further regulate the finance sector are claimed to have dampened lending capacity, private equity’s interest in airline ground handing continues: the sector appears to remain profitable and stable in the medium to long term as the world’s appetite for flying shows no sign of abating. Private investors look to gain as banks remain reluctant to lend.
This appetite was reflected in 2015 when one private equity company sold its ground handling operation to another private equity firm.
French private equity player LBO France sold Worldwide Flight Services (WFS) to Platinum Equity. LBO France had acquired WFS in 2006 from French construction leader Vinci.
It completed the acquisition of Worldwide Flight Services during the summer. WFS is the world’s largest cargo handler and a leading global provider of ground handling and technical services. Financial terms were not disclosed. The transaction was subject to customary regulatory consents and approvals.
Bastian Lueken, head of Platinum Equity’s European investment team, said: “We are excited about the prospects for WFS and are working with the management team to execute on the company’s long-term growth strategy.”
Today WFS is present at over 145 major airports in more than 22 countries on five continents. It serves 300 airlines globally, handling four million tonnes of cargo and 50 million airline passengers per annum.
Olivier Bijaoui, executive chairman, president and CEO of WFS, said: “This is a proud day for WFS and the best possible news for our customers and employees all over the world. It is the start of a new and exciting chapter in our long history and with Platinum Equity’s operational support and financial strength we can now build on the growth we have achieved in recent years. Our collaboration will enable WFS to provide even more possibilities for our customers and to explore new avenues of growth.”
Platinum Equity is a global private equity firm currently investing from a $3.75 billion buyout fund focused on acquiring businesses that can benefit from the firm’s operational expertise. The firm has substantial experience in transportation, logistics and distribution services, including aviation.
Another significant capital move in the sector was the summer activity around the IPO (Intial Public Offering) of Saudi Ground Services (SGS) and its subsequent listing on the Saudi Stock Exchange.
The IPO was undertaken through the sale of 30% of the share capital of SGS to potential investors. SGS allocated 33.84 million shares to institutional investors and 22.56 million shares to retail investors at a price of SAR50 per share.
The IPO was considerably oversubscribed and raised SAR2.82 billion ($752 million). SGS is the largest airport ground handling services provider in Saudi Arabia and is the only ground handling services provider that operates across all the airports in Saudi Arabia. SGS was formed as part of the wider national carrier Saudia’s privatisation programme.
SGS was the second of such businesses to go public after Saudi Airlines Catering Company’s IPO in 2012.
The Indian media was captivated this summer by a potential flotation of national carrier Air India. Speculation as to whether or not the carrier would reach market under the Narendra Modi government continued. One interesting potential development is the suggestion by company insiders that its ground handling division could be the first section to be privatised.