Ground Support Equipment: An Essential Connection
Both commercial airlines and aviation Ground Support Equipment (GSE) service and equipment rental providers own and/or operate GSE. An asset that depreciates, GSE has high ancillary costs and must comply with various environmental, social and safety regulations. The significance of GSE to the aviation industry cannot be underestimated and, in the simplest terms, air transportation would halt without it. Aviation ground support allows airlines to make, keep and modify schedules for both passenger and cargo transportation purposes. An interruption in ground support would be a disruption to the industry itself and all of the businesses that rely on commercial air carriers.
GSE is a worldwide asset and as such is manufactured, serviced, refurbished and resold in various parts of the world. Two of the largest markets include the U.S. and Europe, based on passenger and cargo traffic. Some major commercial airline carriers prefer to own and operate their own fleets of GSE, while others look to ground service providers at the airport. It is more prevalent in the U.S. that air carriers are self–handlers, to the tune of about 60%; while in Europe carriers prefer to outsource by roughly the same percent. The GSE providers are typically engaged in the rental, repair and maintenance, fleet management and pooling of aviation ground support assets.
SUPPLY
Oversupply of used equipment available
In the U.S. and Europe, the trend is to replace older, functionally obsolete, fuel inefficient and environmentally unfriendly equipment with newer equipment, when economically feasible. Similar to other mobile equipment industries, GSE of all ages and condition are currently in use, some of which date back 50 years in original design. The most recent economic decline and the lack of available funding created a domino effect whereby idle equipment became expendable at both the airline level and the service provider level. Many in the industry faced a situation of excess capacity or surplus equipment, which when listed for sale, resulted in market saturation and depressed prices, especially for the older less desirable assets.
Consolidation and service pooling further saturating the oversupplied market
Consolidation of GSE service providers and the pooling of equipment assets at certain airport locations results in reduced overhead and operating costs, but it also creates excess idle equipment. Indications are that rental equipment companies and service suppliers that have been operating with older equipment are disappearing from the landscape. Repossession became more commonplace with the economic downturn, only serving to increase the inventory of these industry–specific assets further.
Original equipment manufacturers starting to see new equipment movement
Manufacturers of GSE that supply the industry are located in various parts of the world to fulfill the needs of the user base. The primary OEM suppliers are located in the U.S., Europe and Asia, the same primary economies that supply so many other manufactured products. As older assets continue to be retired and the industry calls for better equipment and more cost–efficient services, the supply of maintained, late model, used equipment will diminish, and OEM’s will look for new equipment orders and initiate revamping of inventory stock where applicable.
DEMAND
Increased environmental standards driving demand up for some equipment
Environmental standards in the U.S. imposed at the state and federal levels, requiring reduced emissions and cleaner air quality, accelerated the obsolescence factors associated with some of the equipment. The replacement of fuel–powered equipment with “greener,” electrically powered equipment has already occurred in geographic areas under such mandates. Similar to other industries in the U.S., late model well–maintained equipment commands good resale value. These types of assets are necessarily in demand as they represent an alternative to buying new, may still carry a remaining OEM warranty, and represent the latest in technology and fuel efficiency. The availability of a specific type of asset drives market demand whereby other assets are plentiful or rarely available.
Demand for services and equipment relative to the movement of people, goods and state of the global economy
Demand in the domestic marketplace for new and used GSE has been on the decline in parallel to the economic decline that has occurred over the past 30–month period, although there are signs of more activity and inquiries in the second and third quarters of Q3 2010. The lack of demand reflects the decline in passenger and cargo traffic. Air passenger traffic and airfreight volume directly influence the demand for GSE and related services. Commercial airline business and leisure travel are traditionally cyclical throughout a calendar year but, over the long term, result in a relatively stable demand for ground support services and equipment, pending economic volatility.
Industry trending towards outsourcing verses owning
With the increased difficulty at airports of operating and maintaining their own ground support fleets coupled with the costs of such operations to commercial carriers on the rise, the global trend has moved towards outsourcing. Security measures and fuel costs in particular are direct impediments to self-handlers and their ability to control costs. Likewise, the use of new model aircraft such as the Airbus A380 creates the need for specific GSE engineered for a particular aircraft.
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