Shifting sands?

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 New revenue streams in global air passenger traffic and air cargo movements are driving major changes in the business environment for handlers against a backdrop of increasing liberalisation. Growing worldwide air passenger traffic and long-term increases in air cargo activity are driving a global airside services market likely to reach a value of US$48.2 billion within five years. This is being powered by ever higher numbers of passengers and volumes of freight from developing countries, as the worldwide growth of middle cass populations drives route development, according to Californian business analyst Global Industry Analysts (GIA) and its comprehensive global report on airport airside services markets published this summer.

Increases in business and leisure travel, expansion in the number of passenger seats made available by airlines, growing pressure to reduce the time aircraft are parked on airport stands and the need to ensure efficient use of scarce airport resources are all factors driving the development of airside services.

While this growth is likely to increase the potential revenue available, a quicker route to increased turnover for ground handlers is being witnessed in the increasing mergers and acquisition (M&A) activity in the market. Indeed, some of the largest handling companies are bullish on the prospects of buying up their competition.

A report by business consultants KPMG on the Swiss M&A market in 2013 highlighted that the “most impressive transaction” that took place in the third quarter of that year was in the transport sector: it flagged up Swissport International AG, the world’s largest provider of ground and cargo services to airlines and airports, as taking over Britain’s Servisair UK Ltd for $598 million.

“With the largest ground handler Swissport acquiring the number three in size, Servisair, we believe consolidation in ground handling will accelerate over the next few years,” says Mervyn Walker, executive vice president operations for Menzies Aviation, responsible for network-wide operational performance encompassing cargo handling, passenger handling and support services. “We at Menzies, the second-largest ground handler globally, have made three acquisitions this year. We have a large war chest for further acquisitions and will target at least another five acquisitions per annum for the next three years.”

At the same time, Jon Conway, divisional senior vice president responsible for dnata’s airport operations, notes that consolidation of market players is set to continue. He remarks: “Most believe there is more consolidation to come within the ground handling sector. I would agree. The recent Swissport/Servisair deal is, of course, a major recent example. Allied to the continuing trend for airlines, especially those with legacy cost bases, to outsource their ground handling activities, we will see growth as well as consolidation. All companies want to grow, but the key aim is to do so in a sensible way, retaining your ability to make a profit, while serving your customers well.”

This consolidation is obvious in other acquisitions. Two years ago, Aviator acquired Novia and its ground handling operations at Copenhagen International Airport and at Malmö International Airport. A SEK 1 billion ($160 million) company, Aviator is comprised of the Swedish company Nordic Aero and the Norwegian companies Røros Flyservice and Norport Ground Handling.

Elsewhere, US aviation services company Saker Aviation Services acquired Phoenix Rising Aviation this summer, taking over the maintenance, repair and overhaul (MRO) firm located in Bartlesville, Oklahoma.

“Phoenix Rising has proven its capability in the highly competitive MRO segment of our industry, providing outstanding customer service and quality mechanical craftsmanship for several years,” states Ron Ricciardi, Saker’s president and CEO.

Phoenix Rising Aviation offers MRO services specialising in Dassault Falcon jets, especially out of production models. Saker Aviation Services provides fixed base operations (FBO) flight support services through a growing chain of US-based facilities, including ground handling, aircraft fuelling, MRO, charter, hangar/tie-down, facility management, pilot support services, operational consulting and other related services.

As another example, in late 2011, Fraport AG Frankfurt Airport Services Worldwide, a major company in the global airport management business, divested itself of its Fraport Ground Services Austria GmbH (FGSA) wholly-owned subsidiary to Çelebi Havacilik Holding, one of the leading ground handling specialists in Europe. The parties agreed not to disclose the terms of the transaction.

FGSA provides ground handling services at Vienna International Airport, Austria. The company generated revenues of some 16 million euros ($21.8 million) in 2010 and currently employs some 290 staff. FGSA was renamed Çelebi Ground Services Austria after the divestment.

Final stages

According to Conway, dnata’s business in Dubai is in the final stages of establishing a fully licensed and approved aircraft line maintenance department. He explains: “We are in detailed negotiations with several carriers and are very excited at the level of interest shown from airlines of all types. All being well, we aim to be offering full line maintenance support later in the year both at Dubai International Airport and Dubai World Central (DWC), which commenced scheduled commercial passenger operations on 27 October.

“In addition, we are looking at other ancillary activities which are not perhaps seen as ‘core’ ground handling, but are very much linked to airports and air travel. We are not ready to talk about those yet, though.”

dnata provides service both above and below the wing, Conway notes, each requiring different focuses. He says: “Both are equally important – below the wing the focus is very much on safety/security; above the wing, whilst safety and security are non-negotiable, we work closely with our airline customers to ensure their brand and values are reflected in the customer service we provide to their customers.”

One market area that Menzies is not keen to enter, perhaps surprisingly, is China. Given that, by 2015, China is expected to construct 70 new airports and renovate or expand 101 airports, isn’t that country the next best thing for handlers? Apparently not, Walker says. “We have found China difficult. We are in business to make a return and we have found dividend distribution ex China very difficult.”

Many airports in China do not accept major credit cards, meaning that airlines must have pre-arranged contract fuel or are forced to pay cash for gas. Plus, at most airports in China, airlines do not have the option to self-handle and must rely on third-party providers to obtain the required services such as fuel and lavatory servicing. While ground handling and infrastructure in China continue to improve as the ground handling process in general has become very much more streamlined at many of the nation’s airports, there are undoubtedly language barriers, credit issues and airport protocols still to consider.

Global growth in the coming years is forecast to be primarily driven by developing countries in the Asia Pacific region, Latin America and the Middle East. Growing aviation activity in these markets in the form of increased air travel, and expansion and upgrading of airport infrastructure, will drive developments in these markets. Those countries armed with strong economic growth and that enjoy sophisticated financial systems unencumbered by fiscal deficits, sovereign debt risks and high inflationary pressures, are emerging at the forefront of new airport investments worldwide.

Growing pressure

Airside services are of critical importance in driving the operational efficiency and profits of airline companies. Yet the rise in prices of aviation fuel, coupled with the growing pressure to cut airline costs, is resulting in airline operators increasingly outsourcing airside jobs to third-party service providers. Outsourcing of ground handling activities has ballooned and independent service providers are expected to corner a lion’s share of the market in coming years.

One airline that recently divested itself of directly handling its own ground services was Air India. The national carrier hived off two of its subsidiaries, those involved with ground handling and MRO, to allow them to operate as separate profit centres. Air India Air Transport Services Limited (AIATSL) will undertake ground handling activities in various airports in India and be neutral in expanding its operations to service airlines other than Air India. Air India Engineering Services Limited (AIESL) will, similarly, undertake engineering MRO services – not only for Air India’s fleet but also extending its work to other carriers.

According to GIA’s research, the US represents the largest market worldwide for airline ground services. Of growing significance, the Asia Pacific region is forecast to emerge as the fastest-growing market. Ramp handling represents the largest market segment supported by the need for aircraft marshalling on the ground, parking assistance, aircraft towing and pushback, the provision and operation of necessary units for engine starting, and safe passenger movement.

Major players in the market include ACCIONA Airport Services, Aviapartner, Aircraft Service International Group Inc, dnata, Evergreen Aviation Ground Logistics Enterprise, Flightcare Ground Services, Impel, Menzies Aviation, National Aviation Services, SATS, Serviços Auxiliares de Transporte Aéreo, Servisair, Swissport International Ltd, Universal Aviation and Worldwide Flight Services, among others.

A380: a game-changer?

When Singapore Airlines took delivery of the first A380 in October 2007, and put it to work on the Singapore to Sydney service, it might have seemed that the very large passenger aircraft would be a game-changer for airport ground handlers.

In fact, while the super-jumbo now flies into and out of the world’s top 10 international airports – such major hubs as London Heathrow, Paris Charles de Gaulle, New York, Singapore and Tokyo – it has not been the game-changer that might have been predicted.

Conway explains: “I suspect we handle more A380s worldwide each day than anyone else. Below-wing, I don’t see that many challenges or differences. We do find cabin cleaning on long-haul transit flights, especially if we have reduced ground times, to be a challenge on occasions. You’d be surprised how much debris 525-plus people can leave behind in an aircraft cabin over 13 or 14 hours!

“Above-wing, the challenge of course is simply about volume of passengers, checking in, arriving, immigration, baggage reclaim and so on. Nothing new, just more of it.”

Casual staff

The arrival of low-cost carriers, some of which work on B737 turnarounds of 30 minutes, has been blamed by a number of industry observers as leading to a casualisation of ramp and stand staff, cost-cutting and a lowering of standards that is being seen in a greater churn of employees.

Both Conway and Walker are quick to refute that these pressures have led to a lowering of standards and a decline in staff retention. Thus, Conway insists: “Quick turnarounds are a fact of life. If an individual carrier wishes to achieve extremely aggressive transit/turnaround times, then we work closely with them to help them meet their objectives. I have yet to meet a single airline that has asked us to ‘cut corners’ or ‘lower standards’ to achieve a particular schedule or slot.

“In our home base in Dubai, our staff, drawn from over 80 nationalities, tend to join us and remain for several years. We have many colleagues, right across our business, with 20 or even 30 years of service. One of the best parts of my job is the regular long service award presentations.”

For Walker, Menzies also takes pride in its staff retention. He informs: “Our global staff turnover rate is 2% but all markets are different. Generally, turnover is usually higher in over-wing positions rather than under-wing.

“Safety and security are our number one priority. Safety and security always come before profit. Safety and security will never be compromised. We would withdraw from a contract or an airport before putting safety or security at risk.”

 

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