MARK PILLING LONDON
Menzies Aviation Group has come from nowhere to emerge as the world's largest independent handler. Where does it go from here?
The opening of Seoul's Incheon International Airport was a nail-biting time for a whole raft of people. Airport management at South Korea's new flagship hub wrestled with the headline grabbing problems of a semi-functioning baggage system and arguments with staff over road toll charges. Among the nervous onlookers was Peter Smith, chief executive of Menzies Aviation Group. He was waiting to see if his new handling operation at Incheon would win any custom.
This new name in global ground handling was starting up its first new operation since its audacious $118 million acquisition of the veteran US group Ogden Aviation Services. The start-up investment for such a move is considerable. Menzies recruited staff and shipped in the equipment necessary for handling three aircraft on the ground at any one time. On opening day, apart from passenger handling for Northwest Airlines, all it had was several expressions of interest from airlines thinking of shifting their handling away from Korean Air and Asiana Airlines.
But Smith's intelligence says that the interest will turn into business. The available third-party market at Incheon, excluding the self-handled flights of Korean and Asiana, is estimated at a healthy 400 flights per week, predominantly by Japanese and Chinese carriers.
The Incheon start-up adds another Asia-Pacific market to those Menzies acquired in New Zealand, Australia, Hong Kong, the Philippines and Macau with the Ogden purchase. The acquisition propelled Menzies, virtually unknown outside its home UK market, into third place among global ground handlers. It stands behind only Lufthansa's GlobeGround and the Swissair Group's Swissport. Smith has brought the company a long way since he started to expand the aviation side of the business in 1995. The John Menzies group, in which the founding Scottish Menzies family still has a large holding, has whole-heartedly backed Smith's strategy. Its traditional newspaper distribution business in the UK was mature, and it saw aviation as a chance to achieve higher growth rates in a global industry. In financial terms, the aviation side is already becoming a sizeable part of the group - accounting for some £250 million ($360 million) of its £1.4 billion revenues. Moreover, Smith adds that margins are better than from the newspaper activities.
Integrating Ogden
Incheon aside, Smith's attentions over the past six months have been concentrated on integrating Ogden into the Menzies organisation, and building a team to manage it. He describes Ogden as a "real curate's egg of a brand" - referring to a famous piece of English understatement in which a bad egg is described as "excellent in parts". Although Ogden clearly had a poor reputation at London Heathrow and Amsterdam Schiphol airports, its name elsewhere was at least reasonable. Accordingly, the Ogden name will disappear altogether from its European operations, whereas it will be branded as "Ogden Aviation: a Menzies Aviation Group Company" in other parts of the network. To help its wide ranging staff base understand the background of the company, the history of the Menzies clan and its distinctive tartan was translated into 10 languages. All staff got a copy and a baseball cap peaked in Menzies tartan.
It was perhaps a small gesture, but one that suggests Smith understands well the importance of staff in handling, where labour represents 60-70% of total costs. "Everything in handling depends on how you manage your labour," he explains. This means getting a tight grip in all locations on recruitment, training, direction of management and pay.
Industry gossip suggested that Menzies would lose many managers during the Ogden purchase process. In fact, the reverse has been true. The senior teams in the Americas operations are the same, while Europe has a new head in former British Airways handling manager Colin Irvine. Asia sees North-west's Malcolm Bromma taking over from the retiring Gerry Swift, who is staying on as an advisor. Former United Airlines senior vice-president David Coltman has joined as a non-executive director to give extra aviation weight to the Menzies board.
Merger and acquisition activity in ground handling has continued unabated over the past six months. GoAhead, a UKtransport group, has acquired british midland's handling operations, while Germany's D Logistics is buying Cargo Service Center, the sizeable Dutch handling operation. Lufthansa has also appointed advisors to prepare the sale of GlobeGround. "It is quite difficult to read which way the handling industry will go. What is sure is that it will take 18-24 months for the industry structure to reach some kind of conclusion," says Smith.
With Ogden under its belt, Menzies now has the scale to play a significant global role. To grow, it will react to potential acquisition opportunities and tenders, including taking a look at the possibility of acquiring GlobeGround. Menzies already knows GlobeGround well through UK joint ventures, and would certainly find it a much easier task to bring the German firm into the fold compared with Ogden, notes Smith.
In a short time Smith has built the largest independent handler in the world. "I have 3-4 years until I retire, and before that I would like to have left behind a business contributing significantly to Menzies' profits and recognised as a very acceptable provider of ground handling services worldwide." He reckons he is more than half way there.
Source: Airline Business
