Introduction An airline Company, ABC Airlines, which was a government linked Company in the 1980s by the Deeland Governm
Posted: Sun Apr 17, 2022 6:23 pm
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
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