As the aviation sector continues to return to more normal levels of activity, one area in particular which has seen an increase in attritional claims activity is aviation ground handling. The contracts which relate to the provision of ground support and services have evolved significantly over the past few decades. Many are now so bespoke as to bear little resemblance to the uniformity that IATA set out to achieve with their Standard Ground Handling Agreement. So, what are the changes ‘on trend’ and what are the potential implications from an insurance perspective?
Origins
From an early stage, those concerned with the need for services and those tasked with their provision recognised the importance of an element of indemnity for the contracting parties in certain circumstances. Until the beginning of the 1990s contracts had been very much bespoke and convened between the parties often without sufficient knowledge and expertise rendering them at times, unfit for purpose in terms of establishing definitive indemnity positions. Consequently, members of IATA identified the need for a standardised form of contract. What emerged was the Standard Ground Handling Agreement (SGHA), which today, still forms a crucial section of the IATA Airport Handling Manual.
The first iteration of the SGHA was issued in 1993 and began to be adopted by operators and handling companies when entering into contracts for ground handling services. IATA conducts a review of the SGHA framework generally at intervals of five years, when a new working group is established to analyse how effective the agreement has been during this period. It was recognised at the time of the first review in 1998 that the indemnity provision(s) of the 1993 wording were not reasonably proportional in terms of the risk exposure of the contracting parties. To address this apparent inequity, it was decided to insert a new indemnity clause into the 1998 IATA SGHA; Article 8.
Will an increased exposure to risk for the ground handler prove to be a help or a hindrance?
Focused on liability and indemnity, the primary function of Article 8 is to make clear the indemnity position of the contracting parties in certain circumstances with regard to injury to passengers or employees, damage to property owned or operated by the parties, and damage or loss of baggage and cargo (including mail). In simplified terms, under the 1998 Agreement, Article 8 and specifically, Sub-Article 8.5 stipulates that the handling company must indemnify the operator for any physical loss of or damage to the operator’s aircraft, subject to an upper limit of the operator’s All Risks insurance deductible (never to exceed US$1.5m) and a lower de minimus limit of US$3,000, in the event that said damage was caused by negligent operation of ground support equipment.
Sub-Article 8.5 heralded a monumental shift in the risk landscape of ground handling and created an exposure to liability for handling companies where none had existed previously. Now these companies would no longer be able to rely on the ‘protection’ from claims they once enjoyed. A new culture of responsibility, accountability, and best practice would need to be assumed to satisfy the aviation insurance industry that such businesses were still a viable, insurable risk. Of course, the corollary of imposing more onerous terms on handling companies was an increase in their charges to meet an associated rising insurance premium. But operators were now able to recover the cost of aircraft repairs from handling companies without needing to demonstrate intent or recklessness, and this profound change in the agreement was viewed positively by operators who may have understandably until then, felt the wording of the 1993 IATA SGHA variant was unfairly weighted against them.
Further revisions
The next review in 2004 (a year later than scheduled) saw a subtle yet important change to the wording of Sub-Article 8.5, billed as a response to the narrow circumstances in which liability for damage to aircraft might arise, namely the “negligent operation of GSE” precisely detailed within Sub-Article 8.5 of the IATA SGHA of 1998. This clause may well have been viewed as too favourable to ground handling companies because only damage caused by the negligence of an employee in isolation would be sufficient to trigger the indemnity. For that reason, the indemnity was widened to remove the precise operation of GSE as the trigger; the handling company now faced liability for negligent acts or omissions when providing their services.
This represented yet another swing of the liability ‘pendulum’ towards operators, and the shift continued with the publishing of the 2008 IATA SGHA revision, when Sub-Article 8.6 was introduced carrying the stipulation that the handling company must indemnify the operator against direct loss of or damage to cargo subject again to upper and lower limits of US$1m and US$500 respectively and at all times never exceeding the liability of the operator as generally determined by applicable carriage legislation.
The IATA SGHA in 2013 introduced only a slight change to update the limits of liability under Sub-Article 8.6 to correspond with the latest changes to the Montreal Convention in 2009. The 2018 and most current SGHA revision also made only slight changes to the wording of its predecessor incorporating greater contract certainty relative to cargo aspects.
Where next?
The gradual transferral of risk on to the handling company between the IATA 1993 and 2018 Agreements is plainly evident. It remains to be seen whether that will continue in any further IATA SGHA revision through 2023. While the shift in risk since the original 1993 SGHA may have been an unwelcome one for ground handling companies, the main indemnity provision has largely been settled since the introduction of Sub-Article 8.5 in 1998, save for some minor modifications as described above. Nevertheless, from the operator’s perspective there is still one important area that needs reform: the prevention of consequential loss recovery except in cases of intentional or reckless acts on the part of the handling company. In financial terms, such losses can often far exceed the level of repairs, particularly if an aircraft has suffered damage so that it remains grounded and is out of service for any significant length of time.
The IATA Airport Handling Manual does give guidance on how operator’s and handling companies might wish to treat losses arising consequent to physical damage to aircraft, but it does not currently form part of the SGHA unless specific provision is made for it to be included within the operative contract. This often can produce disputes between the contracting parties over what can and cannot be recovered at Sub-Article 8.5 of the SGHA. The general feeling is one that operators will lobby the next IATA working group to consider whether it is still appropriate to preclude them from recovering consequential losses in the current climate, and question whether the guidance from IATA should be formally incorporated into the SGHA 2023 wording to give greater clarity over what losses fall within the indemnity provided for by Sub-Article 8.5.
Whilst the IATA SGHA does remain the favoured wording for contracting parties relative to ground handling requirements, it is evident that perhaps, not content that an IATA revision in 2023 will provide the indemnity position(s) required, certain operators are already beginning to make significant alterations and provisions to their global contract terms.
Positively, what certainly appears evident from many of the alterations seen is that the drive of the operator is to encourage a heightened safety culture where ground services are concerned. It is likely that Covid-19 has been a factor in this process where many handling companies suffered a loss of a number of experienced staff who found employment elsewhere during the pandemic and were reluctant to return to shift-based work post pandemic. It is without doubt that the influx of new and less experienced ground handling personnel will be a factor where the increase in ground handling attritional claims activity is concerned. However, will an increased exposure to risk for the ground handler prove to be a help or a hindrance?
Ground handling companies strictly operate with safety aforethought and remain diligent in ensuring personnel are sufficiently trained, capable individuals yet incidents still occur. The operators and ground handlers alike continue to work together to minimise such incidents at an operational level however, at a contractual level, the trend appears to be becoming one in which to impose increased financial penalties for service failings including damage to aircraft. It remains to be seen whether this will prove effective or produce a situation in which pressure to avoid penalties will bring about a tendency to take unnecessary risk during a service provision. If you are concerned with risk from an insurance perspective, this continuing evolution (revolution?) will be something that will require close attention going forward.
