Opinion on the Commission Consultation Paper on Ground Handling Services (94/C 393/21)

On 27 January 1994 the Commission decided to consult the Economic and Social Committee under Article 198 of the Treaty establishing the European Community, on the ground handling services.

The Section for Transport and Communications, which was responsible for preparing the Committee's work on the subject, adopted its Opinion on 20 July 1994. The Rapporteur was Mr von Schwerin.

At its 318th Plenary Session (meeting of 14 September 1994), the Economic and Social Committee adopted the following Opinion by a large majority, with two abstentions.

1. Introduction

1.1. On 14 December 1993 the Commission adopted a Consultation Paper agreed upon by DG IV (Competition) and DG VII (Transport) on ground handling services at airports [SEC(93) 1896 final].

1.2. The Commission feels it needs to act to reorganize ground handling services because of:

- the expiry of the special block exemptions at the end of 1992 in line with Article 85(3) of the EC Treaty;

- criticism by many airlines of the lack of choice between suppliers, and

- resultant complaints to the Commission.

2. Background

Current situation at EU airports

2.1. The term 'ground handling services' covers all services connected with aircraft, passenger handling and cargo. This embraces a wide range of different services, which fall into 11 categories:

1. Ground administration and supervision;

2. Passenger handling;

3. Baggage handling;

4. Cargo and mail handling;

5. Ramp services;

6. Cleaning;

7. Fuelling;

8. Aircraft maintenance;

9. Flight operations and crew administration;

10. Surface transport;

11. In-flight catering services.

A large number of people are employed in these 11 areas, including not only technicians and engineers but also other skilled workers and auxiliary staff.

2.2. Within the twelve Member States there is a reasonable degree of choice of service provider on the land side. Thus in most European airports, airline companies are able to exercise direct control over the service they offer to their flight passengers.

However on the air side, that is baggage and cargo handling, ramp services and surface transport, the situation is very different. Five Member States have liberalized to a greater or lesser extent - they already offer, at least, some choice of service-provider within an airport. But seven Member States do not offer any choice, they operate monopolies, of which two are held by national airports and five by national airlines.

Thus, on the air side, a choice between competing service-providers is only available at some European airports.

2.3. Some airports, like some airlines, receive both open and covert support from owners and/or governments.

The owners of airports may be the state, local authorities, private firms, or any combination of the three.

Services as a rule are provided by airport operators, by airline companies (in respect of their own aircraft) or by airline companies acting on behalf of other airlines (third-party services). In isolated cases outside firms are brought in.

Some airports own the land they are located on, while others have to pay a fee for use of the land. Airports which own their land have a competitive advantage, enabling them to calculate charges differently from those which do not own the land. Airports which own their land have other financing options (balance-sheet operations). This affects the cost structure, thus impacting on competition.

Operating conditions must be comparable for comparisons to be made between handling charges and landing fees. This is the case when a high degree of harmonization has been achieved. There is a considerable lack of harmonization in the case of both airlines and airports. There is a need for further harmonization of technical and social standards, and the same applies to fiscal and environmental matters.

Overall operating conditions at airports vary widely, as do the conditions for ground handling services. Few airports operate all their own ground handling services.

3. Commission proposal

3.1. The Commission proposal aims to reorganize the ground handling services market and open it up to competition, the principal objective being to guarantee quality services and an acceptable level of prices for all concerned.

It is considered essential to avoid discriminatory practices, as observed at some airports, and the distortions of competition between carriers which such practices may engender.

3.2. This objective is to be achieved by opening up the market.

The Commission proposes that the current legal and practical restrictions be removed so as to establish free access to the market by other service suppliers.

This process is to be backed by framework regulations in order to ensure that the market operates in accordance with the principles of competition. This does not preclude national regulations, which could be particularly useful in guaranteeing smooth management of infrastructures and maintaining safety and security. National legislation would nevertheless have to comply with Community law.

3.3. The Commission's line is that, because of differences between airports, the problem could be solved by adopting a differentiated approach, i.e. opening up markets to differing degrees, whilst at the same time recognizing that the interests of passengers and users are of paramount importance.

3.4. The Commission notes that the distribution of investment costs is an important question when opening up the market.

It is felt to be reasonable that a supplier should bear all the costs of providing services. But problems may arise if an airport is forced to shoulder the often considerable investment involved in accommodating new suppliers.

It is proposed that all service suppliers should have to contribute to the financing of all investment, e.g. through the rents and fees, etc., which they will be asked to pay in return for access to the infrastructure.

4. General comments

4.1. The Committee welcomes in principle the Commission's efforts to ensure rapid, functional handling at European airports, especially for passengers. However, the ESC feels it is important that, before any solutions are proposed, the differing conditions at each individual European airport should be collated and analyzed.

The Committee sees it as the Commission's task to provide a clear picture of which airports have fully opened up the different categories of handling services fully, which have opened them up partly and which have not opened them up at all.

The Committee believes that this is an important prerequisite if opening up the market is to bring about fair competition.

4.2. In preparatory discussions on this Opinion, it was noted that the term 'liberalization' should be used with care since it implies open access to the market for any number of operators, e.g. for all airlines wishing to be self handling. The Committee agrees, however, that this is impossible and that a solution should be sought which realistically reconciles competition and choice.

4.3. The Committee feels it is imperative to differentiate between land and air sides when considering liberalization.

Liberalization is much easier to achieve on the land side, and, according to our information, has already been implemented in many cases.

On the air side (particularly ramp services) liberalization is much more difficult to tackle, due to various constraints. Without supporting the principle of full liberalization of the ramp services, the Committee thinks that between an existing monopoly situation and the proposed full liberalization, there is room for a reasonable opening of the market with the introduction of a second and/or third handler(s). This will enable the users to have the choice of competing service providers. On this point the Committee shares the Commission's view that varying degrees of market opening must be considered as a possible solution.

4.4. In the course of its discussions on the Commission paper, the Committee addressed some of the possible consequences of opening up the market.

It is of fundamental importance to remember that revenue from ground handling services accounts for a considerable proportion of airport operators' earnings.

Depending on the scale of changes, certain effects could for instance be felt in the following areas:

a)

Funding of airport investment

In most cases airports are owned by local authorities and are required to be independently profitable. If airport company earnings are lost, this has an impact on funding for the infrastructure of the whole area around the airport. An airport is the hub of a whole economic area and provides the raison d'être for a complex series of activities.

If the market is opened up, the cost of the necessary investment will in any event have to be spread over all service providers. In some cases, bottlenecks caused by capacity limitations and the need for coordination can only be reduced or removed by means of heavy investment. If the cost is spread equitably, this factor will in many cases militate against opening up certain services to improved competition.

b)

Safety and security

The air side of an airport is a sensitive area in terms of both safety and security, i.e. there is a need for protection against attack and for foolproof technical facilities.

As a general rule, staff are thoroughly screened before they are allowed to work in sensitive areas. There have, however, been cases, where 'third party operators' are involved, of staff starting work in sensitive areas before the results of the security check are known. Passengers in particular, as well as airport and airline employees, are entitled to expect that security is not sacrificed to financial considerations.

The safety/security risk increases when several operators are working on the ramp together.

As a result of the division of labour in effect up to now, workers at all airports have tended to become highly specialized and skilled. This is one reason why there have been so few accidents in normal operations. Maintaining and improving high-level safety standards must be given absolute priority in any revamping of ground handling services.

c)

Employment

In the interests of continuity and especially in view of the comments made in b) above, it certainly makes sense to provide for as many full-time jobs as possible in the ramp area.

Bringing in more than one operator often leads to an increase in part-time employment and casual working, and thus to a fall in income levels.

This might reduce the cost of services, but, in macro-economic terms, it would be a negative development. Regardless of any proposed cost-cutting measures, airport and airline employees are entitled to job-security guarantees.

The Committee feels that, in any event, the interests of all employees must be borne in mind when considering this issue.

d)

Environmental impact

Standards on noise abatement, water pollution control and building regulations vary enormously between airports. In the case of the new Munich airport, 10% of the DM 8 bn building costs (= DM 800 million) went on reducing the environmental impact.

Depending on the ownership structure, conditions are laid down which sometimes are more stringent than national legislation, especially in cases where there is a high density of population near an airport. To ensure a secure future for the whole air transport sector, environmental protection measures must not be tampered with. There are already considerable problems gaining public acceptance for the operation and expansion of airports.

e)

Capacity

On the air side, the possible problems of capacity, security and safety, air space congestion etc. mean that there will have to be proper control over, and a limit to, the number of service providers.

The activities of handling agents and airline companies with their own and third-party handling are an additional burden on airport infrastructure, resulting in considerable capacity losses at airports with limited space available.

London Heathrow, for example, does not allow self-handling, but no less than eight airlines are allowed to offer the full range of ground handling services in the four terminals. In practice, however, only two handlers are active in two of the terminals. The airport operator thinks there are too many handlers and would like to reduce the numbers. They find the scale of equipment, air side traffic and support facilities makes the whole operation very difficult to manage safely and efficiently.

The Committee recognizes the importance of these views and feels that they should be borne firmly in mind during all subsequent discussions.

f)

Ground turn-round times

Ground turn-round times are an important factor affecting capacity projections and productivity for airlines and airports. Having more than one supplier in the field of ground handling services would require a greater degree of planning and control, and therefore more time.

Proper management of ground handling operations creates an opportunity for competition and provides a good service to the airlines and their passengers. In order to ensure optimum use of the limited space available and to maintain short ground turn-round times, it is essential that overall control should continue to remain in the hands of the airport operator, even when the market is opened up and third-party handlers are brought in.

5. Specific Comments

Legal bases

5.1. The Commission refers mainly to Articles 85 and 86 of the EC Treaty, and particularly Article 85(3). On the basis of this Article, the block exemption expired at the end of 1992.

The Committee endorses the statements made by the Commission in its Communication of 1 June 1994 on The way forward for civil aviation in Europe [COM(94) 218 final] insofar as they lay down a timetable for further consultations.

The Commission announces the presentation in October/November 1994 of a draft Directive on how best to ensure the non-discriminatory, transparent and cost-effective provision of airport services and adequate user participation in decision-making.

The Committee assumes that this document will take into account the results of the discussion on the first consultation paper and of the various studies which have been commissioned.

5.2. In any event, the fundamental importance of this issue necessitates the involvement of the relevant bodies. Steps must therefore be taken to ensure that the Council, European Parliament and Economic and Social Committee are involved.

6. Conclusion

The Commission also pinpoints restrictions which would have to be borne in mind in any reorganization of ground handling services:

- lack of space;

- demands on safety and security;

- technical complexity;

- investment in infrastructure;

- speed of handling.

On these points the Committee is largely in agreement with the Commission. This makes it all the more important to undertake a realistic assessment of the potential consequences before any decision is taken. The whole matter is very complex. The objective of improved performance for passengers, companies and employees must not be sacrificed in favour of any particular economic ideology.

Whilst waiting for the Commission to announce the presentation of a draft Directive, the Committee - after in-depth consultations and with reference to point 13 of the first consultation paper on Ground handling services at airports ('unbundling') - proposes that consideration be given to whether it is possible under Article 87 to oblige airports to differentiate in their cost accounting between airport management activities and the various ground handling services.

Done at Brussels, 14 September 1994.

The President

of the Economic and Social Committee

Susanne TIEMANN