In this article, Swati Paul, General Counsel at London Luton Airport, describes the legal structures that she had to design, and implement, to help support a revolutionary business idea.
Air travel is something we all take for granted. We may not give much thought to how it is delivered, but behind the smooth exterior of an international airport there is a complex web of services. One of the most critical is ‘ground handling’, which is the process that takes place as a plane lands, baggage is removed and the plane is prepared for its next flight. These services are usually carried out for the airlines by large multinationals called ground handlers (GHLs).
A few weeks after I started as General Counsel (GC) at London Luton Airport (LLA), I was approached by the head of airfield operations who wanted some advice on a new project that he said would revolutionise ground handling and improve the airport’s operations. This sounded great, but presented a significant challenge for me as I had no prior knowledge of aviation.
His idea had never been implemented in any airport in the world and he did not know which legal structures would be required to support it. This was one of my first challenges as a newly minted airport GC. I needed to quickly assess what was required to take his idea forward, otherwise it would fall at the first hurdle.
A problem needing a solution
LLA was having problems with the ground handling services it received, which resulted in complaints and negative publicity for the company, even though LLA was not providing the services itself. GHLs have disproportionate commercial power as the price of the specialist equipment required to provide the services means that there is little competition and the barriers to enter the market are high.
The proposed solution was to open the market by pooling or arranging shared rented equipment for ground handling. Usage would be logged by a swipe card and billed accordingly. This would open the market to new entrants and hopefully improve service quality through increased competition.
Taking the helicopter view
To successfully advise on this project, and before I could put ‘pen to paper’ to devise the structure, I realised I needed answers to several questions:
- What is LLA proposing to do, practically?
- What is LLA trying to achieve?
- What is the legal and regulatory environment?
- How will the legal and regulatory environment work from a wider operational perspective?
- Who are the key stakeholders, both internal and external?
- What are the commercial drivers?
Be prepared to ask the stupid questions
To meet the challenging timescales, I had to be prepared to ask the ‘stupid questions’. I had no choice but to allow the business to explain to me, step by step, what they were planning to do and then outline the surrounding legal and regulatory framework. Airports are governed by their own legislation and are subject to regulation by the Civil Aviation Authority and European bodies. Once I had grasped the concepts at a high level, I needed to return to my desk and verify all their explanations, which involved a large amount of legal and regulatory research.
Deciding how to implement the idea
My first step was to contact the law firms that advised LLA. Unfortunately, they did not understand the project and how to implement it, and therefore it all came down to me. I decided to break the problem into its constituent elements from a practical perspective, and go back to legal first principles to understand the issues. I also needed to understand how all the components fitted together and assess their wider operational impact. Once I had evaluated all the risks I liaised with the relevant departments, including health and safety, and procurement, and our insurance advisers. I then identified three possible structures. At this point I realised that further business input was required.
Maintaining ongoing stakeholder engagement
The project that I was involved with went to the heart of airport operations and was critical to the entire business. Therefore, I needed to engage with all stakeholders. I needed the business to buy in to my proposals, which meant keeping them involved every step of the way. The advantage of engaging on a multidisciplinary basis is that each stakeholder has a unique set of skills that may help to solve the problem. Another issue was teasing out what each business function wanted to achieve from the project. For example:
- Operations wanted efficiency and service improvements.
- Finance was interested in income streams.
- Procurement was focused on KPIs and service standards.
- Strategy was interested in corporate reputation.
I arranged a series of meetings with senior stakeholders including the CEO, CFO and commercial director, as well as senior stakeholders in Airfield Operations. I then presented the idea to them in a succinct manner that encouraged comments and maintained engagement.
Testing, testing
Next was the testing phase. I reviewed all the risks and then applied them to the proposed structure to see what worked best. Through this process, I found that the optimum legal structure consisted of separating the responsibility between LLA and the equipment supplier, and the equipment supplier and the GHLs. This structure protected LLA from liability in relation to the equipment, but ensured standards and prices were maintained. This approach was then agreed with all stakeholders.
Implementation phase
I did all the drafting myself and it was then reviewed by key stakeholders. I made sure that the ground handling licences from LLA to the GHLs included the obligation to enter into an agreement for the pooling of equipment. This took many months of negotiation. The supply component was tendered. I worked closely with the procurement teams to deliver this and ensure that my carefully drafted agreement was not diluted following negotiations with the equipment supplier.
Success at last
18 months later the licences were in place, the agreements signed and the project was delivered (there were a few ‘bumps’ along the way). The project brought several practical advantages to LLA, including:
- The process of working on an aircraft is now more efficient with a reduction in equipment damage of 98 percent.
- Delays caused by ground equipment issues have been reduced by 76 percent.
- There is a 40 percent reduction in congestion on the airfield.
In addition, if you travel through LLA you will notice that all the equipment near aircraft is smart and efficient.
The head of airfield operations told me that the legal structure was integral to the successful delivery of the project as the risks were allocated in the optimal way. The project continues to attract interest from airports around the world. The legal work won a Law Society Excellence Award and the business has since gained new ground handlers.
So, if you are called on to do something that no-one has done before, perhaps the framework set out above may offer you some assistance.
Swati Paul trained and worked in the City at firms including CMS, Clifford Chance and Dentons. Before she became General Counsel at London Luton Airport Operations Limited in 2015, she gained in-house experience at Transport for London and Ofgem.
This article was first published on Thomson Reuters Practical Law In-House Blog.
