Ground Support Equipment
Date May 2018
- Total scheduled flights (foreign and domestic) increased just 0.4% for 2017 over 2016, indicating a fairly static industry in terms of scheduled volume
- Despite fairly flat scheduled flight volume year-over-year for 2017, passenger traffic is expected to increase 6.0% for 2018, representing a decline from the 7.5% growth rate seen in 2017
Ground Support Equipment key drivers: Key drivers of this industry are directly tied to the growth and performance of the airline industry and the factors affecting the airline industry both domestically and internationally. When the health of the airline industry is good, the ground support industry typically benefits from an increase in new and used equipment sales. Corresponding demand for certain types and ages of equipment utilized more heavily may vary by country or region.
Global Airline Industry outlook remains profitable: The International Air Transport Association (IATA) forecasts global industry net profit to increase to $38.4 billion in 2018, representing an improvement over $34.5 billion in 2017. Strong demand and improved efficiency will help airlines improve net profitability despite rising costs. This is expected to be the fourth consecutive year of sustainable profits with a return on invested capital of 9.4 percent exceeding the industry’s average cost of capital of 7.4 percent.
Passenger numbers rising: Passenger numbers are expected to increase to 4.3 billion in 2018. Passenger traffic (revenue passenger kilometers) is expected to increase 6.0 percent for 2018. This rate is down from the 7.5 percent growth seen in 2017 but is still ahead of the average of the past 20 years of 5.5 percent.
Cargo volumes increasing: The cargo business continues to benefit from a strong cyclical upturn in volumes with some recovery in yields. Volumes are expected to grow by 4.5 percent in 2018, which represents a decrease from 9.3 percent in 2017. The boost to cargo volumes in 2017 was a result of companies needing to restock inventories quickly to meet unexpectedly strong demand. This led cargo volumes to grow at twice the pace of the expansion in world trade. Cargo yields are expected to improve by 4.0 percent in 2018, which is slower than the 5.0 percent rate for 2017. While restocking cycles are usually short-lived, the growth of e-commerce is expected to support continued momentum in the cargo business beyond the rate of expansion of world trade in 2018
Emerging markets present opportunity: While the United States represents the largest market for ground handling systems, increasing travel in European, Asian-Pacific, and Latin American markets are projected to steadily increase. Airports are expected to expand their infrastructure to accommodate this growing traffic capacity. With continued urbanization and consumer spending on air travel in countries like China, India, and Brazil, new opportunities and continued growth in ground handling support services are expected.
The IATA highlighted three key priorities for the ground handling industry to support the growing demand for air travel, which include harmonizing global standards to improve safety, improving collaboration between stakeholders, and developing talent. “Effective ground operations are an essential part of the airline industry’s efforts to meet the forecast growth in demand for air connectivity. In preparing for the future we need to focus on consistently implementing global standards, enhanced collaboration, and accelerating modernized processes,” noted Nick Careen, IATA Senior Vice President Airports, Passenger, Cargo and Security.
Secondary market for ground support equipment remains healthy: The overall U.S. market for new and used ground support equipment remains strong. While segments that support wide body aircraft have done better than segments that support narrow body aircraft, projected growth is expected due to airport expansions and increased passenger traffic. Continued profits and growth within commercial aviation for domestic and international airlines and the private sector have led to a continued demand for both new and used ground support equipment. Currently, larger airline companies continue to purchase new equipment, while smaller scale aviation companies purchase a mix of new and used equipment.
Market research indicates that market saturation of used equipment could be on the horizon. However, for this to occur the trend of new equipment purchases by profitable airline companies would have to continue, resulting in a continued deposit of used equipment into the secondary market. As of spring 2018, this has not come to fruition and demand is still outweighing the supply of the available used equipment in North America. In general, equipment 10 years old and under is most desirable, attracting large buyer pools with good resale values. These later-model assets offer buyers an opportunity to purchase more fuel-efficient equipment equipped with modern technology at a discounted price. Equipment in excess of 10 years old and assets that service narrow body aircraft will attract some smaller capacity U.S. buyers, along with buyers from Mexico, Asia, and other developing nations that have capacity to utilize this type of equipment or to replace equipment that is decades old.