Introduction An airline Company, ABC Airlines, which was a government linked Company in the 1980s by the Deeland Governm

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Introduction
An airline Company,
ABC Airlines, which was a government linked Company in the 1980s by
the Deeland Government. Due to its poor performance both
financially and operationally, the national airline Company
delisted itself from the stock market as the Company was facing
losses and required substantial cash injection at that moment.
However, the
privatisation only remedied the situation for a short period as the
Company faced various operational and management problems. In year
2000 due to endless problems, the Deeland Government decided to
dispose the Company to Tony Francesca and his partners for D$2.00,
a businessman who had no prior knowledge and experience in the
airline industry.
Background of the Company
ABC Airlines was the
first airline Company founded by the Deeland Government in 1947
when the airline industry was still at its infancy in the country.
The initial objective of ABC Airlines was to provide convenience
for Deeland’s citizens to travel domestically and internationally.
There was an economic boom in Deeland in the 1970s and ABC Airlines
achieved significant growth during this period. In the early 1970s,
ABC Airlines went public and its shares were listed on the stock
exchange. The initial public offering (IPO) of ABC Airlines was
overwhelming. Soon, ABC Airlines started to expand and it took all
the domestic routes within Deeland and many international routes.
ABC Airlines was flying to over 10 overseas. Customers praised the
airline for its great service and affordable price. It could be
said that it was one the best airlines at that time.
ABC Airlines’ operations
Since Tony and his
partners took over the ABC Airlines, one of the strategies is to
increase its marketing and competitive edge by expanding its
international routes to more than 50 overseas, even some of it were
unprofitable. In order to cater more routes, the Company had
committed the orders of more aircrafts.
The Company had
diversified its operations into a few unrelated industries and
sectors. Despite operating a commercial airline as the main
business, ABC Airlines has expanded its operations into the cargo
business (ABCargo), catering business (ABCatering), tour operator
(ABC Holidays). hotels (ABC Hotels) and financial services (ABC
Money). These operations acted as supplements to the business and
help to boost its revenue. ABCargo provided air freight services by
delivering parcel using ABC Airlines while ABCatering supplied the
in- flight meals for the passengers. ABC Holidays provided holiday
packages and handled ground tours for its customers, and ABC Hotels
provided accommodation, while all the passengers were flying using
ABC Airlines. ABC Money offered affordable prepaid and loyalty
cards as well as life and general insurance products.
Currently, the ABC
Airline has a total workforce of 20,000 employees worldwide and the
Company adopted an asset heavy business model. The working capital
is mainly attributable to staff-related costs, variable costs, IT
operating expenses and other general requirements.
The first fall of ABC Airlines
In the late 2010s,
ABC Airlines had faced its first fall due to the financial crisis.
The Company’s revenue was affected because of the decreasing demand
of flights. Everyone in the country was badly affected and
travellers chose to reduce their expenses by postponing or
cancelling their travelling trips. Some flights had hardly broke
even and some flights even operated at losses.
At that time, the
Company has a staggering accumulated total liabilities of D$35
billion owing to the creditors, mainly the airport management,
financial institutions, maintenance providers, engine suppliers,
lessors, trade creditors, travel agents and passengers.
Tony and his partners
were confident that the Company would be able to weather the
Company’s financial woes and expected the tourism industry will
pick up in the early of 2020.
The second fall of ABC Airlines
In the early of
2020, the world is facing the outbreak of COVID-19 pandemic. This
presented an unprecedented challenge to the public health, food
systems and the world of work. The economic and social disruption
caused by the pandemic is devastating. Nearly every business in the
world has been affected by COVID-19 particularly sectors related to
tourism industry.
Tony and his
partners initially thought that the pandemic would not impact much
on the airline’s businesses. However, it has been proven wrong that
the pandemic would not see light at the end of the Covid-19 tunnel
over the next two to three years.
With many countries
imposed strict restrictions and the closing of its borders to curb
the spread of the pandemic, this had led to a significant fall in
demand for international air travel. Hence, the Company’s revenue
dropped to nearly zero coupled with the escalating of operating
costs, Tony and his partners were concerned about the Company’s
financial liquidity and also the mounting liabilities.
ABC Airlines
technically insolvent had suspended all payments to creditors in
order to preserve liquidity due to the impact of the COVID-19
pandemic on its businesses. The Company had requested creditors to
form a steering committee to evaluate a planned restructuring
proposal. If the creditors disagree to the scheme of restructuring,
then the Company will to seek court approval to voluntarily
wind-up.
The passengers who
had paid the air tickets in advance were furious and demanded the
airline for a full refund of the flight tickets. As the Company was
facing severe cash flows to reimburse the passengers, the Company
decided to categorise them as one of the creditors. The Deeland
Aviation Commission (DAC), the aviation regulator disagreed with
the action undertook by the Company. DAC argued that under the
Deeland Aviation Consumer Protection Code, the Company should not
have classified passengers as such given the fact they paid for
their tickets and did not loan money to the airline.
Discussion with the financial controller
ABC Airlines
continued to face severe liquidity constraints to meet its
creditors, passengers, working capital requirements and operational
costs. Tony decided to hold a meeting with Mr Jason Young, the
group financial controller, to seek his advice on the creditors and
operational restructuring issues, and strategic option available to
the Company to further strengthen its liquidity and competitive
positions. Tony and his partners would need to convince the board
of directors to endorse the proposal and hoping that the
restructuring could be implemented successfully so that the Company
could stay afloat and restart its operations when the international
borders reopen.
Required