Beyond GSE Rental

A variety of operators in Europe have opted to wipe expensive GSE from their balance sheets to concentrate precious funds on service enhancement instead. And, as Richard Rowe discovers, GSE rental is only the half of it.

March 2003

The need for cost-effective GSE management solutions has rarely been more acute and operators around the world are busy pursuing smarter ways to manage some of their most expensive assets. One key issue is that a successful ground service business relies on readily available, proficient and reliable GSE - the problem is that the full-time management of such equipment involves a significant financial undertaking at a time when money is tight for operators.

Take ground handlers, for instance. Figures vary, but GSE can account for 70 to 80 percent of total capital expenditure. It is, perhaps, no surprise that some have chosen to remove such costly items from their balance sheets altogether, preferring rental or leasing arrangements to outright purchase.

Aircraft
Aircraft
Aircraft
Aircraft

Nigel Daniel

Nigel Daniel

Of course, the concept of GSE rental or leasing is nothing new. Rental, in particular, is an ideal solution for sourcing seasonal equipment, such as deicers in winter, or for a quick fix while waiting on new equipment to arrive from manufacturers. Meanwhile, the capital expenditure crunch in some markets, the U.S. included, has precipitated a rise in 'rent-to-buy' agreements.

But in Europe, several operators have embraced an alternative that goes above and beyond traditional rental or leasing. European ground handling managers are listening intently to the message that they have neither the time or the expertise to manage their equipment efficiently.

Unions and GSE managers might not like it, but the argument has proved persuasive; several handlers in the UK and the Netherlands have entered long-term partnerships with GSE management companies offering flexible equipment rental or leasing, backed up with a variety of additional fleet management, repair and maintenance services.

And it's not just handlers. British Airways (BA) has outsourced GSE management since 1997. Working with Ryder Ground Fleet Services, the process began at London Heathrow before being rolled out to the airline's regional bases around the UK.

With the Ryder contract almost at an end, BA is now inking a new contract with Lex Transfleet, the carrier's new preferred bidder. "We have gone through an extensive tender process for this piece of business as the contract with Ryder reaches its natural expiry on March 31 after a period of six years," explains David Norfolk, BA's Ground Transportation Contract Manager.

Norfolk was unable to comment further given ongoing negotiations, but it is clear that a large airline like BA looks set to continue trusting its GSE management to a third-party.

Entry Barrier
In the current financial climate, many ground handlers are faced with a difficult decision should they win a major new contract. While most would jump at the business, not all can afford the new GSE often expected by airlines to serve their aircraft. In some cases, lack of available funds can be a genuine barrier to entry.

Call it class ridden, but as Peter Wehrli, Equipment Manager at Swiss handler Jet Aviation, points out: "Second hand does not always go down well in Europe. You need the quality."
Of course, business can also be highly seasonal and there is growing reluctance to invest heavily in new equipment that cannot be guaranteed optimum use - particularly when handling contracts can move on or dry up altogether.

It is little wonder that some handlers now look to invest available cash in product enhancement and growth rather than tying it up in equipment. Take GlobeGround, for example, which last summer sold its equipment to KLM Equipment Services (KES) and is now leasing the equipment back for use at its Amsterdam Schiphol operation.

Similarly, KES is now preparing to take over Martinair's GSE operation at Schiphol. It has agreed as part of the deal to invest $10 million in new equipment on behalf of Martinair over the next decade.

The trick is to really get under the skin of each operator to understand their needs, explains Hans van Geenhuizen, Managing Director, KES. "Ground handlers and airlines have different peaks," he says. "It could be that 70 percent of an operator's equipment is needed on a short-term lease arrangement, with 20 percent on long-term and the rest rented by the hour.

"The peaks are not always the same so if you know a user profile then you can really move the equipment around."
In addition, KES has also just begun a pooling and rental trial of GPUs at several gates at Schiphol.

Each unit has a user ID code and operators simply punch in and out, with KES calculating the cost based on actual use.

The trial is expected to generate valuable data which will then be sent to a variety of interested parties: maintenance customers are interested in fuel consumption, for example, while the airport authority is keen to learn about reduced congestion, improved safety and the environmental benefits of having less equipment transported around the airport.

"We just want to prove to customers that they can buy their power more cheaply," explains van Geenhuizen.

Fleet Services
"Ground handling is a people management business not an asset management business," contends Donald Meulebroek, Sales and Development Director at TCR International, another high profile GSE services provider.

Headquartered in Belgium, TCR has developed extensive GSE management operations in France, Germany, the Netherlands and, most recently, in the UK. Last year, GlobeGround (at London Heathrow) and KLM Ground Services (Heathrow and Amsterdam Schiphol) turned to TCR after securing large handling contracts.

GlobeGround awarded TCR UK a 10-year rental contract to supply two large aircraft tractors, two GPUs, three lower deck loaders, seven electric tractors, seven aircraft container trailers, and one set of motorised aircraft steps.

KLM Ground Services, on the other hand, awarded a three-year rental contract for a pushback tractor and high loader, while the same handler, through its Schiphol Brede Services division at Amsterdam Schiphol, awarded a 15-year rental contract (or 450,000 working hours) for eight towbarless AM500 tractors.

Another customer, UK handler Groundstar, is confident that the future will see even closer ties between ground handlers and companies such as TCR. Formed in 1999 following an Institutional Buy Out of three former handling entities, Groundstar has worked with TCR to transform its equipment procurement process.

The relationship began last year when Groundstar secured a major contract to handle Ryanair at the low cost carrier's London Stansted hub (see Ground Support Magazine, May 2002). Charged with sourcing nearly '2 million (US$3.5 million) of GSE in the six weeks from notification to start of contract, Groundstar knew that it had to look outside traditional procurement methods to be ready.

"We decided that one of the most unpredictable things about GSE, and particularly if used, is the maintenance side and we really wanted to avoid those headaches," explains Nigel Daniel, Managing Director.

As such, the handler awarded a five-year equipment rental contract to TCR UK that included the provision of repair and maintenance services, plus full training on a rolling replacement of equipment. TCR supplied more than 260 units of GSE including pushback tractors, electric tractors, aircraft steps, and baggage dollies. Most importantly, it provided the procurement stability that Groundstar so badly needed.

"Another advantage is that the Ryanair contract runs for five years and in three years and 10 months from now I get totally new equipment," says Daniel.

The Ryanair operation at Stansted is currently the only one where Groundstar has handed its GSE operation over to TCR altogether, although a similar replacement of older equipment and handover is now being implemented at Groundstar's four other UK locations.

"We plan to phase out all the old equipment around the network in a total of two years," explains Daniel. With the odd exception, Groundstar is simply no longer in the business of buying GSE.

And the Ryanair experience will certainly stand Groundstar in good stead as it prepares for start-up at London Gatwick in March. This includes a five-year contract to handle 4,500 flights a year for charter airline, Monarch, which has again involved sourcing several million dollars worth of GSE.

Package Power
Part of the appeal for handlers such as Groundstar is that the market now offers tempting GSE packages that not only remove financial risk, but also improve overall ramp handling service. TCR's bespoke GSE rental package, for example, includes analysing customers' flight schedules to pinpoint GSE requirements; guaranteeing a supply of readily available equipment; preventative maintenance programmes; full training on equipment; and repair and maintenance for normal wear and tear.

"We take care of all the 'behind the scenes' activities associated with GSE ownership," explains Meulebroek. "This allows customers to concentrate on their core competence - efficient and safe ramp handling."

Similarly, TCR has developed a suite of tools to accompany its fleet service options: each item of GSE features a GPS tracking device that enables TCR to locate equipment and assign the nearest item for an incoming aircraft. Another is an electronic ignition key that ensures only authorised operators can access and use the equipment.

And then there is Magic, TCR's name for an electronic system for preventive maintenance planning, as well as tools such as GSEPlan and StaffPlan, both developed by Sabre, that calculate optimal GSE fleet size for every customer.

"We are able to take over in situations where airlines and handlers can't control their GSE and are unwilling to invest," explains Meulebroek. "We try to become an extension of a handler's own business."

Daniel appears comfortable with TCR becoming effectively Groundstar's sole GSE supplier. "We are not experts [in GSE management] so why should we be tied up with it," he reasons. "Our growth cannot be maintained if half my time is spent dealing with GSE manufacturers."

Of course, not all handlers are convinced. Peter Wehrli at Jet Aviation questions whether such a GSE package is not a solution just suited to new companies. That said, Wehrli does not dismiss the idea entirely. "A rental package could become attractive for us if we had secured a handling contract that asked for a large amount of equipment immediately," he says.

And this is perhaps the challenge for TCR, KES, and others to show that such a solution is long-term and offers more than just a quick fix.

"It is a big management decision for a large ground handler to go down this route 100 percent, but for certain other handlers it is a perfect option," argues Meuelbroek.

Daniel at Groundstar would agree: "We have been doing this for about 15 months now and although there are some additional costs at the start, we are really reaping the rewards now. TCR helps drive our growth."

And not just Groundstar's growth -TCR International tripled its business in its first year and doubled in the second. "Now we are growing at 40 percent per annum and I would expect that to remain the case for some time," says Meulebroek.

"But will the industry see TCR take its GSE management model outside of Europe" Meulebroek notes "contact 18 months ago with several operators outside Europe, and some in the U.S., but everything changed following 9/11."

The continued fallout from that day has triggered more interest, and from a higher level. "We now have enquiries from the CEO rather than operational level, which is a good thing in terms of getting things done quickly," he comments.

For now, he adds, TCR will just "continue to grow with the market" - one that in Europe, at least, seems to show no bounds.

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