TCO: a complex calculation

posted on 27th September 2023
TCO: a complex calculation

Total cost of ownership (TCO) has become something of a buzzword in the GSE world. But estimating TCO is not necessarily straightforward – and nor is it necessarily the priority when selecting equipment. Megan Ramsay reports

From a handler’s perspective, while a high TCO is not necessarily a deal breaker, considering TCO is still a key part of the tender process.
“Depending on what you are buying and where for, that could change: you have to balance the cost, TCO and lead time for each project,” says dnata vice president technical services UAE and global GSE strategy Robert Powell. “You need the best, most reliable GSE at the most attractive price, taking into account the initial outlay and the lifetime of the equipment – which could be 15 years or more.
“TCO varies with labour rates and other factors [in different locations],” he notes. “We can apply the OEM’s [original equipment manufacturer’s] template (including recommended service schedules or information about sourcing replacement components) to different stations [and] we measure TCO using our own maintenance manuals.”
On the one hand, it is easier than ever to calculate or predict TCO nowadays, owing to the vast amounts of data available when GSE is appropriately equipped.
At Germany-based lessor HiSERV: “This kind of data allows a continuous insight into the current condition of our equipment and the financial impact this condition has on the GSE’s TCO,” says Moritz Schmidt, managing director. This may relate to a specific unit, a GSE fleet, a specific location, or the age of GSE.”
Among the more obvious elements in calculating GSE TCO are things like the upfront investment cost; other elements such as after-sales support, spare parts supply, and how quickly manufacturers solve problems might not cost the user money directly if the equipment is covered by a warranty, but they can affect operations and thus incur indirect costs to the business.
TCO is easier to predict with regard to fixed equipment. “Mobile GSE is more in the line of fire as it gets driven all over the airport. Even the condition of the tarmac can affect wear and tear,” points out Rune Lind Pedersen, strategic marketing manager and area sales manager – Finland and Iceland at ITW GSE, adding: “It could be interesting to look at how pooling affects maintenance requirements – perhaps fewer accidents or lower mileage?”
Unforeseen events like the Covid-19 pandemic can cause disruption to supply chains, logistics and parts manufacturing – forcing users to prioritise their most important assets and the procurement requirements of those units.
Sometimes handlers need the same parts for maintenance that manufacturers need for producing new equipment, so lead times on replacement components can be extended and the TCO of existing equipment can rise.
In some instances, the result of the disruption to spare parts supply is that an asset remains operational beyond its intended lifespan, pushing up TCO because older parts are more difficult to source. Air freighting spares to avoid shipping delays also hikes up the cost of maintenance.
“You have to decide whether to invest in maintenance or replacement of assets. Engines, chassis and so on are expensive at the moment,” says Stephen Skiff, head of GSE procurement at Dubai-based air services provider dnata, part of the Emirates Group.
But the worst appears to be over, and while there is still some supply chain volatility, service has more or less returned to normal.

Many would agree that electric GSE has a lower TCO than diesel equipment. Schmidt says customers are tending increasingly to opt for these over diesel versions whenever possible, and Pedersen points out that while the availability of charging points for eGSE is still an issue, “it seems we are on the verge of a transition. People have decided: no more diesel.”
From a TCO perspective, he explains: “Moving from diesel to electric lowers TCO because you remove moving parts and the equipment is easier to service. Fewer things can go wrong with electric GSE, and you don’t have the same sort of day-to-day maintenance (checking oil or belts, for instance) – although you do still need to do things like check tyre pressure.”
For example, ITW GSE’s 3500 PCA has been very successful in the US; its modularity makes the unit easy to service, which means it lasts longer and has less down time, and customers spend less money on employing people to take care of it. And an eGPU can run for 20% of the cost of a diesel GPU – although this varies with the cost of electricity and fuel, Pedersen concedes.
There tends to be more aggressive financing for greener equipment, even though the price of electric variants may be higher than their traditional diesel counterparts. But TCO remains “hard to pin down. It depends how you judge risks and trends and the horizon. You might go for a higher TCO now, depending on your view of the future,” says Bruno Vanpoucke, strategic development and M&A director at TCR Group.
For instance, today the initial investment for electric GSE is higher, but the high price of diesel may mean electric units are more cost-effective. Then again, if CO2 charges are implemented in the future, that difference in running costs could be reduced, while at the same time the price tags on many electric units are coming down as the technology becomes more established.
Also complex is the matter of residual value: this is easier to define for diesel equipment than for newer green alternatives, Vanpoucke says, as batteries are still an unknown quantity. “Should you invest in a new battery for 10-year-old equipment [that won’t last as long as that battery]? And what will be the price of batteries in 10 years’ time?” he asks.
In addition, it can take longer to analyse failures in electric GSE, and different skills are needed to fix electric units – requiring the employment of electrical engineers rather than mechanics.
Already, demand for qualified technicians is outstripping supply, and with electrification happening across the board in markets like Europe, Vanpoucke does not believe the skills gap will ever be closed.
“We are competing with industries that require the same skill sets (such as automotive maintenance) and that have deeper pockets,” he says. “The maintenance of GSE will become more and more niche.
“Plus, people still understate the risks of electric GSE – it’s high-voltage equipment and it can be a fire hazard, which means that certification will be required and that will push costs up for users. So the organisation around electric GSE can be costly, and is not properly reflected in TCO.”
However, TCO is not usually the main reason for choosing electric equipment: the push to reduce carbon emissions often takes precedence over other considerations. dnata has pledged to cut its carbon emissions by 20% by 2024, for instance, while Swissport intends its fleet to be 55% electric by 2032 (today, it is 21.2% electric).
“Everything we buy today will live beyond 2032, so each piece we buy that is not electric will make it harder for us to reach our goal,” says Patrick Lasten of Swissport’s global fleet team. “Our three-year plan up to 2025 involves replacing our assets with e-GSE, especially things like baggage tractors or conveyor belts.”
Electric cars and vans are also on the agenda at Swissport, the price differential between these and conventional versions having diminished. (On the other hand, the cost of an electric GPU remains substantially higher than a conventional model.)
There are of course regulatory pressures too and, Vanpoucke points out: “If governments force companies to go electric, people will have to go for equipment with a higher TCO. Certain airports, especially in Europe, are going electric; from a regulatory perspective, there’s a higher push for decarbonisation there.”
For example, Amsterdam Airport Schiphol’s target is to be net zero by 2030. Swissport’s fleet there is already 53% electric, suggesting that a proactive approach by an airport to cutting emissions is effective.
Lasten also notes that the only fuel option at Amsterdam is sustainable HVO100, supplied by KLM Equipment Services – the sole fuel provider at the airport. HVO100 produces 98% less CO2 than regular diesel; it is also 20% more expensive, but there is no alternative at Amsterdam.
Another aspect to consider is that some airports charge very high rates for electricity, although overall it is still cheaper than diesel – for now?

Prevention is better than cure
Whether electric or diesel, GSE can function better for longer with preventive maintenance, which is thus key to lowering TCO.
Maintenance costs typically rise steeply near the end of the lifetime of a piece of equipment; without proper preventive maintenance, those costs can start to increase much sooner, maybe halfway through the life of the product.
However, scheduled/preventive maintenance is often not carried out completely because of equipment availability issues, or because the need for corrective maintenance takes priority.
According to Lasten: “It should be 70% preventive maintenance and 30% corrective but it’s often the other way around. If you don’t do preventive maintenance, you end up having to do more corrective maintenance – and if you’re doing more corrective maintenance, you don’t have time for preventive maintenance.”
Here again, data is playing an ever more important role. By analysing an asset’s history, it is possible to extend its life.
For instance, says Powell: “You might notice that a component keeps failing on a regular basis, so you could look for a better one to replace it or change it at a set frequency to keep ahead. Improved IT, data analytics and data lakes all have benefits if you keep your mind open. They help with the ‘do–review–plan’ cycle.”
Similarly, at HiSERV, the operational data gathered through the connectivity between GSE units and HiSERV’s systems helps decide when to change a certain part. “The combination of system-based analysis together with personal experience provides very strong results,” Schmidt says.
Vanpoucke believes it is better to think of TCO across a fleet rather than per asset because of the issue of availability. “You might need 11 assets to ensure nine are always available, as opposed to only needing 10.”
Worth noting is that suppliers and users of GSE are tending increasingly to work together to improve the performance and availability of GSE, with the added benefit of reducing TCO.
Skiff remarks: “We have an opportunity with our strength in the market to work with the OEMs to design problems out of GSE for the future – to close the loop.”
Indeed, adds Powell: “The standards we expect from manufacturers, such as quality assurance programmes, include design improvement. We have strategic relationships with the OEMs and our suppliers are open to helping us fix problems. Sometimes we fix things ourselves and let them know, and some take up our solutions.”
Pedersen says ITW GSE receives a great deal of feedback from customers; they are especially proactive with regard to eGPUs. “These are new products and there aren’t many reference points yet, which makes them a breeding ground for customer-led innovation.”
The company also issues service bulletins to inform customers of any problems that may need attention, and trains customers to service equipment themselves in order to minimise down time (though it will also carry out repairs on their behalf when necessary).