Bucking the trend

posted on 22nd June 2018

Operational leasing of ground support equipment (GSE) aims at reducing the high financial risk associated with GSE purchase. However, geographical and operational differences still play a critical role in determining the decision to buy or rent, reports Keith Mwanalushi

A frequent, and fairly straightforward question often posed by users of GSEs is ‘why own, when you only want to use?’ Owning GSE ties up capital and, if the wrong purchasing or maintenance decisions are made, there is an inevitable negative impact on the bottom line. However, airport operators and ground handlers will usually frequently turn to a variety of options, from short-term rentals to longer term operating leases of GSE.

“The last few years have seen an acceleration of the equipment rental business concept,” outlines Marc Delvaux, CEO at TCR Group, which provides turnkey solutions for aviation GSE.

“On the one hand, the airlines and ground handlers are continuously searching for higher efficiencies and flexibility to counter the fast pace and higher globalisation of the market.” On the other, Delvaux observes that in a volatile environment, companies now generally prefer to use their available financial resources to fund growth strategies rather than finance capital expenditure and infrastructure like workshops, “especially when it is now commonly known that these assets are easily made available through operating lease arrangements. Accordingly, there has been an increase in demand for rented GSE and for fleet conversion of existing fleets,” he adds.

In terms of trends and the general market response towards leasing GSEs, Alan Stearn – executive vice president at Fortbrand Services – says it’s tough to make a blanket statement regarding the topic. “We see GSE rentals prevalent in relation to seasonal equipment, such as de-icers and air conditioners.

“Also, higher priced equipment, such as pushback tractors, de-icers and air-starts tend to lend themselves to longer term leases, as the end=user often prefers to spread the cost of the equipment over the term of its useful life.

“In addition, we’ve found that ground handling providers often like to match the term of an equipment lease with the term of their handling contract, thus providing them with the opportunity to return the equipment if the contract were to not be renewed,” Stearn explains.

The rental model was introduced quite late in the air transportation industry, about 15 years ago, compared to other asset-intensive industries like logistics, construction, road transport, rail or information technology, where equipment rental had long since become a widely used method of sourcing equipment.

“In the mid-nineties, there were very few rental companies which were in a position to deal with the complexity of renting GSE, especially when considering the just-in-time and stretched environment in which the equipment must operate,” notes Delvaux.

He continues: “Consequently, with no one to promote the concept, GSE rental was still ‘terra incognita’ to a great extent, and understandably there was quite some cautiousness from the handlers and from airlines to outsource such a strategic part of their complex handling process to small start-up players.”

As the industry saw an increasing need for the service, some early adopters started to test the model, and eventually professional players successfully structured the path to offer robust rental solutions that could match the requirements of handlers and airlines.

Other options

Quite often, GSE involve a sale and lease back transaction that can be useful in releasing capital. UK-based Falcon Airside Ltd, specialists in the specification, supply and maintenance of aircraft GSE, confirms that in many cases the sale and lease back can be integrated into a disposal and upgrade programme, thus enabling initial payments to be generated from the disposal programme and replacing old equipment with new from day one.

Fleet conversion is a significant part of TCR’s operational leasing offer: TCR takes over the existing fleet, and rents them back as appropriate, further to a joint analysis of the operational needs. In most cases, this should result in the optimum use of the GSE fleet for the user.

Despite a global interest for the GSE leasing concept, TCR indicates that geographical differences play a part. “For TCR, the biggest markets for GSE rental are the UK, France and the Netherlands, where more than 25 percent of the equipment is rented.

“Currently TCR is also very active in Spain, Belgium Germany, Norway, Italy and Ireland. Although handlers have been quicker to take on the rental concept, most of the airlines are now also investigating this type of solution and therefore we can expect some further development in the market,” Delvaux reveals.

And he adds that the USA and Asia (which traditionally prefer purchasing GSE outright) are showing growing interest in the leasing option. “There is a contrast between countries where the aviation sector is privatised and ones where it is state-owned, ones such as Russia, where the market still prefers to purchase – although short rentals are used as a good solution to satisfy extra needs generated by seasonality or important events.”

Different equipment suppliers will have various guidelines and rules relating to the maintenance of leased equipment. At Fortbrand, the lessee is responsible for preventive maintenance while the equipment is in their possession, while at TCR, maintenance, repair and spare parts management are part of the leasing offer and therefore included in the rental fees – except for any repair to damages not stipulated in the agreement.

Delvaux explains that predictive and preventive maintenance, as well as spare parts management and technical labour, are processed through a dedicated computerised system which gives a real-time view of the GSE operational status at all times. This includes maintenance scheduling, spare part consumption, equipment utilisation and safety requirements.

“Our professional relationship and processes with preferred spare parts’ suppliers allows constant replenishment of stocks and rapid delivery when necessary. Our contracts always include preventive maintenance schedules that reduce unexpected breakdowns. Customers know and can plan in advance when each unit of equipment needs to get a technical preventive check and how long this will take.”

He highlights the need for accurate training for GSE users to avoid misuse, “but nevertheless, if a breakdown occurs, then TCR has the capacity, infrastructure and the people to act rapidly,” Devlvaux adds.

Optimising value

Once the piece of GSE has been acquired, it is vital to evaluate its operational efficiency, how to optimise use of the GSE and how to analyse its down-time. Minimising the down-time is an issue that some operators struggle with, according to industry research.

Yet maximising the value of GSE is especially important considering that ground handling is a just-in-time process, and a fast-changing environment in which the optimal usage of assets and availability should be strategic priorities.

Delvaux believes that after accurate analysis of flight schedules, TCR experts can propose the most adequate GSE solution. “The pre-contract analysis takes into consideration not only flight schedules but also the kind of aircraft that customer operates, as well as the operating ODE of the handler and the airlines.”

The fleet optimisation process begins with the selection of the right kind of GSE and the right quantity of GSE to answer ground handler needs. “We can even buy the entire operator’s fleet and sell back only what is needed,” he says. “In terms of leasing we always allow for flexibility; when a customer loses a contract, TCR takes equipment back in under easy conditions. In times of peaks, short-term rental is the best solution avoiding unnecessary down-time. Finally, the rental company will take care of most safety checks, compliance controls and GSE adaptation when there is a change in the legislation.”

Of increasing use at airports is GSE pooling.  Pooling solutions allow ground handlers to share equipment when possible and in doing so achieve substantial cost reductions. JBT Aerotech has a pooled programme in which the company offers equipment to airlines based on a cost per turn – and according to JBT, this minimises the fleet cost and maximises value to the customers – producing an overall guaranteed service at a minimum cost.

Ideally, by sharing GSE, operators can achieve significant cost savings by having less equipment in place. This also means that less space on an airport is required, facilitating further savings since the cost of space is likely to increase with ever tighter environmental regulations.

TCR pioneered the concept of GSE fleet pooling at London Heathrow back in 2004. At first thought it seems the concept is more likely to attract problems, brought about by the use of the same equipment by multiple users. For instance, if one operator prolongs the use of a piece of equipment due to a delayed flight when it is needed by another user.

And Delvaux admits: “Realistically, pooling of GSE can only work in a favourable environment, mainly when there is no overlapping in the flight schedules amongst the various operators.”

But: “In a pooling offer, like for every one of our offers, flight schedules are accurately analysed in order to allow GSE availability for all partners at all times and maintenance costs are split proportionally per hour of utilisation per handler.”

He says to avoid any confusion, rules of utilisation must be strictly adhered too, timeslots are worked out per user and simulations are performed to avoid simultaneous needs. “In the case of unexpected situations, such as a flight delay, previously agreed timeslots will determine user priority,” Delvaux concludes.