European FBO Report: Industry Challenges Include Access and Shrinking Price Margins

 - October 17, 2006, 11:43 AM

FBOs across the length and breadth of Europe are enjoying traffic growth at rates not seen since before 9/11. Expansion of the market for business aircraft handling is drawing new players at some airports, although this trend is still proving patchy due to continued obstacles to market access.

At other locations already stiff competition and rising costs are squeezing profit margins. Overall, long-anticipated consolidation is spreading throughout Europe, taking shape mainly through a wave of acquisitions that is resulting in the emergence of a handful of dominant FBO groups, such as Signature Flight Support, Jet Aviation and TAG Aviation.

An AIN survey of European FBOs shows average traffic growth rates of 24 percent. This is about twice the rate of increase recorded back in 2003, when FBOs were logging average annual traffic growth of 11.7 percent.

On average, European FBOs are now handling some 280 aircraft each month. Paradoxically, this is a 12-percent decrease from the average of 320 aircraft reported in the 2003 survey. This suggests that the continent’s higher overall rate of traffic growth reflects a more widespread expansion of business aviation activity in locations that previously had little or none.

Among the FBOs achieving the highest average traffic growth over the past 24 months are Jet Aviation at London Biggin Hill Airport (43 percent/ 73 aircraft on average per month), Harrods Aviation at London Luton Airport (75/1,200) and Bucharest Baneasa Airport in Romania (32/350).

The latest average figures disguise substantial variations in the scale of handling operations based on survey responses from the UK in the northwest to Turkey in the far southeast corner of Europe. At some airports there are still little more than a dozen business aircraft each month. By contrast, major business aviation airports, such as those in the London area, now receive more than 1,000 aircraft each month.

Turkey–which is seeking to join the 25-nation European Union (EU)– is a classic example of how business aviation is expanding. Istanbul-based Gozen Air Services provides executive handling at eight airports and has achieved average growth of 70 percent, but on little more than 50 aircraft at each base per month. Generally, the past two years have seen higher than average business aviation growth in the 10 states that joined the EU last year.

Gaining Market Access

EU competition rules require that new handling providers are granted access at airports with more than two million passengers per year. But some countries–such as Italy and Germany– are brazenly ignoring these rules.

For example, Naples-based Sky Services has faced protracted legal and bureaucratic battles to establish its franchised FBO operations at Rome’s Ciampino Airport and Milan’s Linate Airport. Managing director Clemente de Rosa expects to have to expend at least another 24 months of effort and expense to secure permission to provide executive aircraft handling at three other Italian airports–Venice, Olbia and Florence.

Similarly, Swissport Executive Aviation (SEA) has ambitious FBO expansion plans in Europe but has found that gaining access to some prospective markets is more trouble than they are worth. According to vice president Alan George, authorities in both Italy and Germany are using their control over the issuing of full handling licenses to restrict competition.

Other states, such as Spain, are taking a more liberal attitude. But even in locations where there is nominally competition for handling services, the competitor is often a
favored state-owned airline with little or no commitment to or understanding of the special needs of business aircraft operators.

German airports can be doubly disadvantageous for aspiring new FBOs. On the one hand authorities can be extremely fussy about the issuing of handling licenses. At the same time, they staunchly preserve the right of aircraft operators to handle themselves–diluting the potential market for FBOs, but also creating the very safety anomalies the licensing process is supposed to eradicate.

In particular, the right for operators to self-handle can amount to a security loophole. George has waited several hours to get the right security paperwork at German airports to access SEA’s facilities only to see self-handling business aircraft crews and passengers wandering the adjoining ramp entirely unsupervised. This begs the question of how easy it would be for terrorists to board a business aircraft at one of Europe’s numerous small airports and fly into a major gateway such as Frankfurt to enjoy unmonitored access to ramps from which airliners could be attacked with shoulder-launched missiles.

Closing the Security ‘Loophole’

In fact, the EC is preparing to extend its existing requirements for full security screening to all categories of aircraft. It wants to extend the application of the European Union’s National Aviation Security Programs to aircraft weighing between 5,952 pounds and 21,825 pounds that are operated under commercial air operator certificates.

This would oblige operators and FBOs to ensure full security screening of, for example, flights by a Socata TBM 700 at the bottom end of the weight range and the new Bombardier Learjet 45XR at the top. Currently the requirements of the existing EU regulation 2320 already apply to aircraft that weigh 22,045 pounds or more or carry more than 19 passengers.

The responses to AIN’s survey indicate European FBO managers generally favor this more on the grounds that it will remove ambiguity from the current security regime. The strong consensus among FBO managers AIN questioned was that the removal of exemptions from security screening would make it easier for them in their dealings with customers who might otherwise resent the process. For example, it would put an end to uncomfortable situations in which operators try to circumvent local airport operating-hour restrictions by unilaterally declaring their mission to be under private rather than commercial rules.

European FBO Report PDF