Renewed Focus on the Ramp: U.S. airports selling fuel? Perhaps; but ramp safety, security concerns are reality

April 8, 2004


Renewed Focus On The Ramp

By John F. Infanger, Editorial Director

U.S. airports selling fuel? Perhaps; but ramp safety, security concerns are reality

MIAMI — Jet Fuel Conference host John Armbrust asks, Wasn’t there a time when airlines selling fuel in the aftermarket seemed unlikely
(sidebar)? Today, he and others ask, are U.S. airports next? That issue, and the growing concerns about ramp safety and security, dominated the discussion at the 6th Annual International Jet Fuel/Airport Operations Conference & Exhibition in March. Some prognostications about jet-A: steady, high prices; increasing demand.

The annual event is hosted by The Armbrust Aviation Group, publisher of the Jet Fuel Report newsletter.

Armbrust ended the conference on a theme with which he began it, saying, “I will make a prediction right here: By this time next year, a major [U.S.] airport will be buying jet fuel for its airline customers.”

Some principal reasons that U.S. airports will consider for getting into the jet fuel business, say Armbrust and others, include a new revenue stream; quality control; and the ability to offer turnkey service capabilities to airlines.

In step with that thinking is an emerging concept of implementing common use ramp equipment, or CURE, by airports and/or private aircraft service providers. It is a takeoff on CUTE, or common use terminal equipment, that has emerged in airports worldwide as a way for airports to increase utilization of gates and allow entry for new carriers into their markets.

NTSB board member John Goglia, who was at the conference to help gather information for an NTSB task force looking into ramp safety and security, calls airports the common denominator when it comes to concerns about ramp activity. “Given the changes in the industry, I’m not so sure we shouldn’t have the airports take control of all of it,” he comments.

That approach is in line with that of directors at several major airports who have been discussing the potential of taking over fueling operations, as heard at recent meetings of the Airports Council International - North America.

The Moline Example
One airport which recently took over fueling and other airline services is Quad City International at Moline, IL. Brian Hodson, airport services and security manager at Moline, says revenue, safety, security, and quality assurance were reasons for the airport move.

Quad City International has 31 daily airline departures and posted a record 407,769 enplanements in 2003, according to Hodson. It also hosts a major fixed base operation, Elliott Aviation, which he says was approached by the airport to provide the services but declined.

The airport formed QCIA Air-port Services, LLC, to handle airline fueling for scheduled carriers and charters, and provides ground handling services for the latter. The fuel farm, consisting of eight storage tanks and a capacity of 149,000 gallons, was already owned by the airport. QCIA purchased two fuel trucks from the former vendor and took over the services November 1, 2003.

The new services division operates out of the former airport operations room and has three full-time and two part-time line personnel. Each airline purchases its own fuel, although QCIA orders it for them, and then the airport pumps it for a fee. The airport also purchases excess fuel for resale to charters and freighters, according to Hodson. He says the base rate for retail sales is calculated on a monthly basis. Com-mercial carriers are charged a $25 hookup fee and 5 cents/gallon, based on a sliding scale.

The airport pumps some 9,500 gallons each day, says Hodson, and has an average 25 daily hookups. Fees to the airlines were kept the same as with the previous vendor, and Hodson says the airport can now waive into-plane fees as a way to attract new carriers to QCIA.

Philosophically, says Hodson, “I believe we’re onto something,” particularly as a mechanism for mainstream and smaller airports to be more attractive to airlines for new service. He adds, however, that “the challenge would be greater at a larger airport.”

Ramp Safety, Security Now Center Stage
Regarding common use ramp equipment and systems, John Armbrust asks, “If it’s working inside the terminal, why can’t it work outside the terminal on the ramp?”

He and others raise the question not only to explore ways to make ramp operations more efficient and cost-manageable, but also because of the increasing concern throughout the industry about the high costs associated with ramp operations, particularly insurance and costs not covered by insurance.

Armbrust questions the current industry model which sees multimillion dollar aircraft being serviced by low-wage employees, a situation further challenged by the growth of regional jets into the ramp mix. It’s a model, he says, that is “going to break real quickly.”

NTSB’s Goglia says the agency is placing an increasing emphasis on ramp operations, and he has agreed to chair a special task force, the Airport Operations Safety Panel formed by the Armbrust Aviation Group, to study the issue.

Goglia says that airline reports to him relate that for even $1 of ramp damage to airliner aircraft, the airlines report it costs another $7 to them in indirect costs.

Robert Vandel, executive vice president of the FlightSafety Foun-dation, asks regarding ramp-related damages, “Is it a cost of doing business? I think it’s about time we debunk that.”

In fact, says Vandel, ramp damage has as its primary cause human error. Solutions to the problem need to be data-driven and systematic, and offer positive cost-benefit ratios, he says. Vandel estimates that ramp damage to the air carrier fleet costs some $4 billion annually, with another $1 billion cost to the business aircraft fleet. Those are on top of the cost of injury and death to personnel. “We want a reallocation of resources and changed behaviors,” he says.

The average cost of a ramp event, he reports, is $250,000 and airlines are often “self-insuring” these losses. Vandel says that one airline’s experience is that of 274 ramp-related claims only one was covered by insurance after the deductible. He also points out that equipment-to-equipment damage and equipment-to-facility damage is much larger than to aircraft.

Vandel says that the Foundation currently has five working teams studying ramp activities:

• Data analysis;
• Ramp facilities, equipment;
• Education and training;
• Management leadership practices; and
• Industry awareness.

Initially, says Vandel, his organization and industry should target the “low-hanging fruit.” For example, some 20 percent of aircraft damage on the ramp is to aircraft doors. Technology is now becoming available that will allow pilots to maneuver their aircraft to boarding bridges automatically by way of an infrared system being developed.

“The captain can push a button to operate the jetway,” he explains. “The application of the technology can go to other vehicles.” Such a system, he projects, could save airlines some $560 million a year worldwide.

There is also concern that ramp security is not getting the attention it deserves. David Forbes of Boyd/ Forbes points out that the threat of shoulder-fired missiles to bring down aircraft is increasing dramatically, and he says this will become both a security and safety issue for ramp activities. The “canoe-sized pod” that houses the anti-missile technology to thwart such attacks will be situated on the bottom of the fuselage, offering yet another exposure to potential damage on the ramp.

Pieter Boone, vice president of airport security for Schiphol USA, which operates Terminal 4 at JFK International Airport, says that “employee access remains a weak link in airport security.” He expresses concern that the Transportation Security Administration has pushed employee screening off its agenda and that there is “confusion on the security responsibility at airports.” He is also concerned that TSA is testing technology but not solutions.

Boone says that once all employees are fully screened prior to entering the aircraft operations area at airports, the issue of ramp security will be solved.

Regarding the concept of common use equipment and systems on the ramp, Thomas Duffy, president of Safegate Airport Systems, says that CURE systems would allow for more operations at individual gates; reduce operating costs; reduce investment; and improve flexibility.

Duffy agrees with FlightSafety Foundation’s Vandel regarding the potential for technology to improve ramp safety and reduce costs. The advent of advanced visual docking ground systems, with which his company is involved, can become critical in preventing obstacle incidents, inappropriate access to gates, and overall reduced employee exposure on the ramp.

Jet-A Demand Is on the Rise

John Chapman, a fuel industry veteran with Chapman Aviation Consulting, says overall demand for jet fuel is
growing, one of several factors that will keep prices high.

Demand is on the rise, he explains, because overall refinery capacity is down and will decrease by 1 percent in 2004. At the same time, OPEC has learned how to manage the price per barrel (ppb), keeping supply and prices in check. Instability in Venezuela adds to uncertainty, although Chapman and others are confident of there continuing to be a steady stream of product.

In 2003, according to Champman, U.S. air carriers purchased 17,794 billion gallons of fuel, a number that should increase in ‘04. He projects general aviation will use 953 million gallons of fuel this year. Jet fuel prices to carriers should hover in the 78-88 cents/gallon range throughout ‘04, he says.

“As we rely more and more on imports,” says Chapman, their growing significance will allow the countries exporting jet-A to the U.S. to have more control on the price. U.S. imports come from Asia, the Virgin Islands, Venezuela, the Netherlands Antilles, Kuwait, Taiwan, and others, he says.
Adds Chapman, “We are at a precariously low level of inventory,” which he explains could add to market volatility and price instability. “We’re going to see a significant increase in jet fuel demand.”

United: an Airline; a Fuel Reseller. Now It’s United With Morgan Stanley

Robert Sturtz of United Airlines says the carrier has historically maintained a “self-supply strategy.” But it also resells some one billion gallons of fuel each year and maintains more than 150 million gallons of inventory. Now it’s relying on Morgan Stanley to deliver the product.

Its 150 million gallons of working inventory is stored in systems at most major U.S. airports, and it uses eight common carrier pipelines to get it there. Through a subsidiary — UAFC — it resells some one billion gallons.

In an attempt to guarantee competitive prices, reduce supply-related working capital, and to maintain an exit strategy, United is contracting with Morgan Stanley, which is now in fuel distribution and management, according to Sturtz. Morgan Stanley was one of 12 firms invited to respond to a request for proposals from United, he says.

The supply agreement has been executed, according to Sturtz, bankruptcy court approval received, and deliveries began January 1, 2004. All bulk supplies from the U.S. Gulf to O’Hare, Dulles, Denver, and New York airports are supplied by Morgan Stanley. All associated fuel supply, pipeline, and terminal agreements have been transferred to Morgan Stanley, he explains. Over time, Morgan Stanley will supply up to 75 United locations.

Among the other benefits to United, according to Sturtz:

• a reduction in working capital tied up in pre-payments, inventories, receivables;
• maintaining U.S. Gulf-related pricing without the staffing, overhead, administrative costs, and trading risks;
• $30 million a year reduction in interest expense on capital employed;
• obtaining a partner with investment-grade credit to finance and grow fuel supply activities.

The deal, says Sturtz, is only beginning to evolve. Shell and World Fuel Services recently signed on with United for distribution and marketing services, showing the potential for more partnering, he says. Through February, United had freed up some $180 million in working capital, says Sturtz.

Boyd: ‘We see positive things’

Michael Boyd, an airline industry analyst with The Boyd Group/ASRC based in Denver, is uncharacteristically optimistic about the fate of the legacy air carriers. The system as a whole, however, continues to face challenges, he says Boyd forecasts airline growth of 2.5 to 2.7 percent through 2007/08 and says, “The news is good; we see positive things.

“We don’t see any more bankruptcies out there,” he says. He thinks management at US Airways will get it through its current challenges and sees the other major carriers working through their current economic hardships. While cautiously optimistic about the success of Song, Delta’s new low-cost wing, he sees Ted as a “dagger aimed at the financial heart” of United, although he expects the carrier to survive. He says that American, Continental, and Northwest in particular are doing well today. Among low-cost carriers, he is very optimistic about the prospects for AirTran.

Boyd says that, for the most part, regional airlines no longer exist and are now “small jet providers” to the majors. Airlines within airlines are on the way out, he says, as are independent commuter carriers and “anything with a propeller.”

Boyd expresses concern that the nation still lacks a clear-cut national aviation policy and that FAA and TSA continue to change the rules. Regarding the nation’s focus on aviation security, he says, “We’re building a chain link fence to stop a flood.”