Corporate aviation operators and ground handling losses

The day to day risks associated with ground operations can be significant and varied. Ground damage can occur in several ways; from collisions with other aircraft or vehicles in and around the airport, to ‘hangar rash’ caused whilst towing the aircraft from the hangar.

The resultant financial effects can be substantial. Aircraft repair costs have been growing in recent years due to the increase in the use of composite materials by the major corporate jet manufacturers. Consequential losses can be sizeable with operators facing replacement aircraft rental expenses to fulfil planned commercial charters or loss of business whilst the aircraft is out of action.

You might think it would be reasonable to assume that the party found to be at fault should be responsible for these costs and bear the associated insurance burden. However, in reality, many ground handling agreements significantly restrict the liability of the party providing the ground services.

The most prevalent ground handling services agreement is IATA’s Standard Ground Handling Agreement (SGHA). Article 8 of this agreement limits the handling company’s liability for damage to the aircraft, to the level of deductible under the operator’s Hull All Risks insurance policy, up to a maximum of USD 1,500,000. For corporate jets this might be as little as USD 10,000. Furthermore, it excludes the handling company’s liability for consequential losses.

There is an ongoing argument that the party at fault does not take on enough responsibility for the losses. Where the hull damage exceeds the amount of the deductible then it is the operator’s loss record that suffers. The exclusion for consequential losses means there can be a significant number of losses for loss of revenue which must be borne by the operator. In the absence of Article 8 these could be recoverable as third-party property damage liability claims under the ground handler’s insurance (although arguably this could lead to increased ground handling costs if premium rises were to be passed on).

So how can corporate jet operators seek to best protect their loss record and balance sheet from these issues?

Wherever possible IATA’s Standard Ground Handling Agreement (SGHA) should be used as a contractual tool, as the baseline provided by the contract and adapted to meet the aircraft operator’s requirements. Article 8 is not set in stone and can be negotiated by both parties. Admittedly, this is not always easy especially since the very nature of corporate travel can mean the use of remote, smaller airports where there may not be a choice, and ground handlers and operators can be forced to accept the presented agreement.

In some instances, creative ways to protect the insurance loss record have been pursued such as an increased deductible applicable to hull damage which is found to be the fault of a ground handler.

Disclaimer

Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed subsidiaries of Willis North America Inc., including Willis Towers Watson Northeast Inc. (in the United States) and Willis Canada, Inc.