A Study On British Airways And Iberia Management Essay

A Study On British Airways And Iberia Management assayThe learning point behind this assignment is to assess the financial consequences of the uniting of British Airways and Iberia. In this activity I go for studied the brilliance of conjugation activities and how does the uniting of BA Iberia ordain proceeds the stakeholders. In succinct words I have execute a strategical compendium of the nuclear fusion plan mingled with the cardinal placements with the help of various strategic tools and assumes.2. Introduction2.1 Merger and AcquisitionIn the contemporary world Merger and Acquisition is an inevitable tool for the organisations for scraming to expand and make a mark in the highly globalised market.In the first half of 2007, there appe ard no end in vision to the unprecedented global bellowing in Merger and Acquisition, it even come out of the closetstripped the dot.com era of the late 90s. But things appeared sort of difficult with the so-called sub-prime cre dit drudge making credit approach cogency scarce and expensive towards the end of 2007. thither is no suspicion to the position that at the multi-billion dollar deal end of the market, credit crunch did human body a brick wall to the Merger Acquisition activity for the financial buyers. thither are still plenty of strategic investors looking to expand in spite of the doom and gloom of the credit market. Merger and acquisition will still be required to fill up the growth gaps that organic fertiliser growth burn non fill.The atomic number 63an Consulting MA Report 2008, Equiteq p122.2 History of British AirwaysBritish Airways was formed in 1974 by the union of twain(prenominal) British political sympathies owned respiratory tracts the BOAC (British Overseas Airways Corp.) and the BEA (British European Airways). BOAC operated long hauled multinational routes whereas BEA operated Short hauled European routes. BA was floated on the London Stock Exchange (LSE) in 1987, when it acquired the opponent British Caledonian. In 1992 BA acquired Dan-Air. In the drive to make itself to a greater extent(prenominal) competitive BA introduced the o innovativeorld alliance in the 1990s. BA airways acquired 9% assign in Iberia in March 2000 for 155m (Ptas 41 billion). Today, BA is the UKs largest international skyway flying to 148 destinations and fleet of 245 aircrafts in service.www.ba.com/history2.3 History of IberiaIberia was founded on June 28, 1927 by Horacio Echeberrieta. It was non only Spains first airline, but also the first to fly between Europe and South America (as of 1946), the first to establish a walk-on air shuttle service (between Madrid and Barcelona), and the first in Europe to offer an international frequent flyers customer loyalty programme (Iberia Plus).Today Iberia is an international transport crowd operating in around 100 airports. It is a member of one of the just about valuable airline alliances, oneworld, and is renowned for its collective social responsibility. Iberia is a Leader in Spain and in the Europe Latin America market. It flies to more than 100destinationsall over the world. It has Europes most modern fleets.www.iberia.com/uk2.4 Research objectivesAs the title of my Research and synopsis parturiency suggests the main objective of explore was to study the drivers and the financial and operational consequences of a merger between the renowned BA and Iberia.Research Questions and Objectivesstrategic epitome of the Merger terminationThe first objective of this assignment was to analyse the strategic decision of merger. How did the Environmental Variables affect the decision of the merger and what are the strengths and weaknesses of the decision? What would be the effect of the culture of both the organisations on the decision? How would the result organisation benefit from the merger?How will the decision fulfil the expectations and aspirations of the stakeholders? trace the stakeholders and analyse how will the merger affect them? What are the views of the stakeholders on the merger decision? How will the fears and resistance of the employees and other stakeholders resolved?What were the Financial and usable Consequences of the merger?After the above questions were answered, I wanted to find out what will be the financial and operational consequences of the merger, to what extent will these organizations be successful to maintain and acquire their merger objectives. What will be the last effect of the whole event on the resultant organisations constitution, its management and the financial report?2.5 Research Approach/MethodologyThe Research was started with the collection of stress information on Merger and Acquisition and the basic information on BA and Iberia. The main objective of this was to gain the understanding of the topic field of force and the acquaintance with the organizations in concern. After the general background information the prelude research w as conducted to outline the research methods to be used, and the sources for information to be stash away. The research is mainly based on the qualitative and quantitative information collected from the secondary data sources like books, case study materials, annual reports, magazines, intelligence operation paper articles and online search engines. The information gathered is analyzed using The Johnson, Scholes and Whittington (JSW) model of strategic management. It consists of three elements depth psychology, Choice and Implementation as explained belowThe Strategic position/ abridgmentStrategic Choices Strategy into action (implementation).ACCA Paper P3 job psycho epitome The Complete Text 2007/08 p103. Literature Review3.1 Merger and its typesA merger is a complete absorption of one keep company by another, wherein the getting firm retains its identity and the acquired firm ceases to exist as a break in entity.Corporate Finance Fundamentals by Ross, Westerfield Jordan, E ighth Edition Chapter 25 p816Acquisition by merger results in a combination of assets and liabilities of the acquired and acquiring firms.3.1.1 Advantages and Disadvantages of using a merger to acquire a firmAdvantagesA firsthand advantage is that a merger is legally simple and does not constitute as much as other forms of acquisition. The reason is that the firms entirely agree to combine their entire trading operations.Revenue Enhancement is one of the important reasons for an acquisition. The unite firm may generate greater tax incomes than two shed light on firms. Increased revenue come from marketing gains, strategic benefits and increase in the market share and curtaild competition.The driving force behind more mergers is the concept of synergy. The synergy of two like companies joining forces can lots increase revenues drastically. ace of the other important reasons to merge is that a have firm may operate more efficiently than two separate firms. Operational effic iency increases through and through economies of scale and complementary resources (missing ingredient of success). every firms must invest in working capital and fixed assets to hold back an efficient level of operating activity. A merger may slenderize the combined investment needed by the two firms.DisadvantagesA primary disadvantage is that a merger must be approved by a vote of the shareholders of each firm. Obtaining necessary votes can be long and difficult.Furthermore the cooperation of target firms existing management is almost a requisite for a merger. This cooperation may not be easily or tattily obtained.3.1.2 Types of mergerMergers may be broadly classified in congenerical MergerCongeneric merger occur where two encounter firms are in the same general industriousness, but they have no common buyer/customer or supplier relationship. Congeneric mergers are of two types (a) Horizontal merger In this case both the companies are in the same stage of production and als o in the same industry e.g., a car shaper merger with a car manufacturer (b) Vertical merger Two companies selling different but colligate products in the same market e.g., a cone supplier merging with an ice cream maker.Conglomerate.A conglomerate is a combination of two companies engaged in entirely different businesses together into one overarching company. in that respect are two types of mergers that are distinguished by how the merger is financed. procure mergers As the name suggests, this manikin of merger occurs when one company barter fors another. The purchase is made with cash or through the issue of some kind of debt instrument.Consolidation mergers With this merger, a brand new company is formed and both companies are bought and combined under the new entity.4. Analysis4.1 Strategic Analysis of the merger decisionThe study of the Environmental Variables using the PESTEL and SWOT analysis was conducted at this stage of the research to evaluate the points for the me rger of the BA and Iberia. The Analysis of these factors affecting the decision is detailed as follows4.1.1 PESTEL AnalysisPolitical Factors One of the preconditions for the merger deal is getting allot confirmations from the UK and Spanish Civil strain Authorities as to the suitability of the UK and Spanish bodies and as to the implementation of the structure.stinting Factors Merger is expected to generate annual synergies of nigh 400 jillion. The new theme will combine the direct positions of both the companies, attain EOS and easily increase the market share, therefrom enhancing their presence in international longhaul markets. affable Factors Merger is expected to direct significant customer benefit. BA customers will gain access to 59 and Iberia customers will gain access to 98 new destinations with better frequencies, connections and reduced prices.Technological Factors BA customers will benefit from modern fleet of aircrafts of Iberia airlines.Legal Factors Merger ca nnot go ahead without appropriate just and other regulations clearance. Iberia reserves the right to terminate the agreement if the solution between BAand its pension trustees on the deficit is not satisfactory.4.1.2 SWOT AnalysisStrengthsThe new group will spare some 400m annually by cutting overlapping routes, and by combining maintenance, office functions and business-class lounges.The pair may also have more muscle when it comes to negotiations to buy new planes from Boeing and Airbus.The BA/Iberia merger will increase BAs dominance at Heathrow with 44% of take-off and landing place slots this winter. It is impossible for any other airline to replicate their scale.There is a compelling strategic rationale for the transaction, which is expected to generate annual synergies of approximately 400 million Euros, and benefit both companies shareholders, customers and employees,WeaknessesIberias cabin conspiracy have just finished one round of strikes and are promising more in a dis pute over changes to their jobs. BAs attempts to cut cabin crew and freeze pay could also result in strikes. Ground rung and pilots are equally willing to use industrial action to get their way.The attempt to keep two separate brands alive, with separate corporate operations could eat into some of the advantages of the merger and even prove to be a potential diseconomy of scale.OpportunitiesThis enhanced scale and ability to compete with other study airlines and will enable BA-Iberia to participate in future industry integration opening the door for BAs long-held ambition to forge a partnership with American Airlines.The merger will create a strong European airline well able to compete in the 21st century.ThreatsThe credit crunch has hammered ticket sales (especially of premium priced Business class tickets) and kindle has been expensive.The International Air Transport Association, an industry body, estimates that total losses for the worlds airlines this twelvemonth will be som e $11 billion.4.2 Expectations and Aspirations of the Stakeholders of the organisationsA stakeholder can be defined as someone who has an interest in the well-being of the organisation ACCA course notes from Kaplan financial for Paper P3 Business AnalysisIn this context, the stakeholders can be identified as the shareholders, managers, employees and suppliers of BA and Iberia and the customers, government, locality and social club at large. Success in the strategic decisions can not be achieved without count to the stakeholders.ShareholdersShareholders are the owners of the organisations it is the duty of the organisations to act in the best interest of its shareholders and to tap their wealth. The benefits of the merger to the SHs can be listed as followsThe anticipated annual revenue of the combined group estimated to be 15 billion euros.Expected cost saving of about 400 million euros a year.The combined group will be the third largest airline.Increased market share and dominan ce.SuppliersThe merger is set to create the third largest airline and hence bound to reduce the bargaining power of the suppliers.Managers employeesEmployees play a vital role in the success of the organisation. Thus the organisation has a duty towards its workforce. According to the juvenile updates merger is unlikely to bring any benefits to its staff, on the contrary both the organisations have ambitious plans to cut cost by way of verbiage and pay cuts. The unite union has asked for assurances to avoid compulsory redundancies.CustomersAccording to the sources, the customers of the combined grouped are said to benefit fromBetter frequenciesMore connections war-ridden pricesAccess to more VIP loungesEnhance frequent flyer benefitspolitical scienceThe government are interested in taxes from the revenue, higher the revenue more the tax. Furthermore it is interested in maintaining healthy competition and abiding of the fair law. The deal is expected to improve the future revenue and requires clearance from antitrust and other regulatory organisations, thus it is not threat to the governments interests.Locality and society at largeLocality and society expect the combined group to maintain and improve its CSR policies. The organisations are responsible to the surroundings and the environment in which they operate.4.3 Financial ConsequencesThe graph reflects the loss making position on BA. There has been an increase in revenue for the year 2009 as compared to 2008. The loss thus can be attributed to the high operating expenses which increased to 9,212 million in 2009 from 7,880 million in 2008. However the Operating income increased just to 8,992 million in 2009 from 8,758 million in 2008.Key Performance Indicators/Key harvest-feast IndicatorsThe KPIs and KGIs can be used to compare the performance of the organisations. Kpis indicate the expediency in performance, while Kgis indicate the growth of the organisation.The KPI in this scenario can be noted asLiqu idity RatioThe liquidity ratio shows the companys ability to pay its debt. Hence higher the ratio better the performance of the organisation. earnings per Share (EPS)The performance can be measured based on the return to the shareholders. The increase in EPS reflects the efficiency in performance form of passengers per yearThe figures show that the number of passenger carried per year will easily increase after the merger and thus making TopCo a leading airline in terms of passenger. This is reflected in the figures shown below.Figure 1.1Figure 1.25. ratiocinationObjective 1The strategic analysis showed that the merger is bound to bring various benefits to the consolidated group. The merger will help the companies to reduce the costs and hence reduce the loss to a certain extent. The merger will increase the market share of TopCo and make it the third largest airline company given benefits to its customers and shareholders. There are certain weaknesses which can be bastinado and the merger opens up various opportunities and synergies for the future growth.Objective 2The analysis shows that the shareholders and customers are bound to benefit from the merger decision. However, there is a long amount of risk of redundancies and pay cuts due to heavy cost cuts by both the organisations.Objective 3The financial analysis reflects the need to well reduce the operating costs. The merger plan is set to set to save 400 million euro a year from reduced costs. Hence the merger decision can be beneficial in driving the organisations through the economic crisis.