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Scenario
You are a former pilot who is now the controller of a division of TransGlobal Airlines, which utilizes a fleet of corporate jets for charter at several airports in the southeast part of the United States. Your division’s private charter clients include several Fortune 500 companies in the region. The Chief Financial Officer (CFO) has informed you that the company is considering the acquisition of two smaller aviation firms in the Caribbean specializing in chartered flights for luxury vacations using light aircraft (60 passengers or less). The CFO has tasked you with assessing the organizational benefits of acquiring these aviation firms. The CFO intends to develop a new business plan for the organization if your analysis recommends moving forward with the acquisition.
1. Share your expectations and understanding of the scenario above.
2. Address the following:
- Review the profile information for TransGlobal Airlines. Why do you think TransGlobal is interested in the acquisition? What do they hope to gain from it? ( UPLOADED BELOW)
- Review the information documents for Company A and Company B. What aspects of their profile do you believe make them attractive acquisition targets for TransGlobal Airlines?(UPLOADED BELOW)
Submit this assignment in an alternate format, such as a 1 page Word document or a 1- to 2-slide PowerPoint presentation.
Location, Size, and Age of the Firm
• Name: TransGlobal Airlines
• Home Country: USA
• HQ Location: Miami, FL
• Size: 40,000 employees
• Age: began operations in 1951
Customer Segment and Target Market
• Class: global airliner with dominant U.S. presence
• Market: global
• Destinations: 242 destinations serving 52 countries across six continents
• Market segment: first class, luxury, business class, and economy
• Global market share: 18% (ranked 2nd, American is number one at 18.6%)
• U.S. market share: 18.3% (ranked 2nd, Southwest first at 19.1%)
• Retention: 80% return customers
• New customer growth: 27% annually (prior to COVID)
• Passenger kilometers: 278 billion (American is number one at 287 billion)
Major Competitors
All international and domestic U.S. airlines
Company Leadership
Publicly held with a board, president, VP admin, CEO, CFO, COO, VP sales, division VPs, subsidiaries
Current Financials
• Annual gross revenues: $20.683 billion
• Annual net income: $2.099 billion
• Adjusted earnings per share of $3.22, a 28% increase year-over-year
• Delivery of 88 new aircraft during the year
• Number of aircraft in fleet, end of period: 1,062
• Average age of aircraft: 13 years
• Domestic revenue grew 7.7% in the last quarter on 1.6% higher passenger unit revenue (PRASM)
and 6% higher capacity. Domestic premium product revenue grew 11% and corporate revenue
grew 6%, driven by strength in business and leisure demand through the holiday period.
Revenue and margin improved in all domestic hubs, with revenue up 10% in coastal hubs and
6% in core hubs.
• Atlantic revenue grew 0.8% in the last quarter on 2.4% higher capacity and a 1.6% decline in
PRASM, driven almost entirely by foreign exchange rates.
• Latin revenue grew 6.7% on a 6.3% increase in unit revenue and 0.4% higher capacity. This
revenue improvement was driven by continued double-digit unit revenue growth in Brazil and
Mexico.
• Pacific revenue was down 0.5% vs. the prior year on a 4.4% decline in unit revenue primarily due
to continued softness in China. This was a 3.2 point improvement vs. the September quarter on
improved trends in Japan.
Strategic Plans and Goals
The board of directors has recently approved a comprehensive plan identified as TransGlobal 2030. The
plan is the result of eight months of data collection, customer focus groups, leadership retreats, and
employee input.
The TransGlobal 2030 vision is to lead the industry in three critically important areas: safety, excitement,
and stewardship (SES). This SES vision has been translated into a collection of guiding principles and goal
statements:
• SES Principles
o We will always treat our customers with respect.
o We will value our employees and business partners.
o We will innovate to provide our customers with the most forward-thinking and exciting
travel experience.
o We will build lifelong relationships with our customers.
o We will protect our planet.
• SES Goals
o Safely re-introduce and promote the MAX 737 aircraft1.
o Expand the fleet of regional aircraft with capacities below 70.
o Upgrade the reservation and ticketing experience, including smartphone apps and
integration with apps associated with lodging, ground transportation, and attractions.
o Achieve top-10 status in the 2030 World’s Best Workplaces rankings (currently not ranked in
top 100).
o Reach net-zero carbon footprint by 2075.
o Accelerate adoption of fuel-efficient aircraft and alternative fuels.
o Expand use of carbon offset measures.
o Improve our Airlines.com safety rating from 5 stars to 7 stars.
o Build brand awareness and customer loyalty.
o Address workplace inequities and build an inclusive culture.
o Train every employee in the basics of FAA’s SAS (Safety Assurance System) via 2-hour web-
based training.
1 The popular 737 aircraft has been the subject of considerable controversy and safety concerns
worldwide.
ASSETS (in millions)
Current Assets
Cash and cash equivalents: $1,268
• Accounts receivable: $1,256
• Fuel inventory: $321
• Expendable parts and supplies inventories, net: $229
• Prepaid and other expenses: $559
• Total current assets: $3,629
Other Assets:
• Property and equipment: $13,776
• Operating lease right-of-use assets: $2,476
• Goodwill: $4,304
• Identifiable intangibles: $2,272
• Cash restricted for airport construction: $280
• Other noncurrent assets: $1,657
• Total other assets: $24,765
Total assets: $28,394
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
• Current maturities of long-term debt: $806
• Finance leases: $200
• Current maturities of operating leases: $352
• Air traffic liability: $2,251
• Accounts payable: $1,437
• Accrued salaries and related benefits: $1,628
• Loyalty program deferred revenue: $1.416
• Fuel card obligation: $ 324
• Other accrued liabilities: $474
• Total current liabilities: $8,888
Noncurrent Liabilities
• Long-term debt: $3,000
• Finance leases: $904
• Pension, postretirement Related benefits: $3,719
• Loyalty program deferred revenue: $1,544
• Noncurrent operating leases: $2,329
• Deferred income taxes: $641
• Other noncurrent liabilities: $610
• Total noncurrent liabilities: $12,747
• Total liabilities: $21,635
Stockholders’ equity: $6,759
Total liabilities and stockholders’ equity: $28,394
Margins
• Operating margin: 14.08%
• Net profit margin: 10.14%
• Operating cash flow margin: 41.7%
• Debt to equity: 3.20
• ROE: 31.04%
• ROA: 7.39%
• Receivables turnover: 16.47%
• Aircraft capacity: 98%
• Current ratio: 0.408
• Quick ratio: 0.2839
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MBA 620 TransGlobal Airlines Information
Location, Size, and Age of the Firm
Customer Segment and Target Market
Major Competitors
Company Leadership
Current Financials
Strategic Plans and Goals
ASSETS (in millions)
Current Assets
Cash and cash equivalents: $1,268
LIABILITIES AND STOCKHOLDERS’ EQUITY
Noncurrent Liabilities
Margins
Location, Size, and Age of the Firm
• Name:
• Location: Miami, FL
• Size: 165 employees
• Age: began operations in 1981
Customer Segment and Target Market
• Market: Caribbean Islands
• Destinations: 15 (Guadeloupe, Guyana, Martinique, Puerto Rico, St. Kitts, St. Lucia, St. Maarten, St.
Thomas, St. Vincent, Trinidad, Antigua and Barbuda, Barbados, British Virgin Islands, Dominica,
Grenada, and Tobago)
• Market segment: luxury tourist and business class
• Aircraft capacities: 20 to 60
• Market share of Caribbean destination airlines: 4th at 18.9%
• Customer segment: vacationers, tourists, Caribbean business, and government clients
• Retention: 66% return customers
• New customer growth: 22% annually
• Seat occupancy average: 74% (top quarter of benchmarks)
• Average customer fare: $450 USD
Major Competitors
• Delta Connection
• American Eagle
• Bahamas Charter Airlines
• Cape Air
• Seaborne Airlines
Company Leadership
Privately held, with a board, president, VP admin, CFO, COO, VP sales
Company Strategy and Direction
The company is well positioned for a transition and strategic investment. Its cash position is especially
positive, providing ample flexibility. Long known as a premium upscale provider, there is an awareness of
the need to broaden the customer base, attract younger travelers, and modernize both the fleet of aircraft
and customer-facing technologies.
The president and leadership team have adopted these goals for the coming five years:
• Improve public image and brand in ways that attract new customers
• Improve employee retention; reduce turnover by half
• Address aging fleet of aircraft; reduce average age of fleet to eight years
• Achieve 20% improved fuel efficiency; leverage this into brand and public promotions
• Reduce on-ground aircraft turnaround time from two hours down to 45 minutes (industry average
is 90 minutes)
Current Financial Highlights
• Annual revenues: $28–29 million
• Annual growth YoY: 2.5–2.9%
• Gross profit margin: 45%
• Net profit margin: 8%
• Aircraft in fleet: 55
• Average age of aircraft: 14 years (25 years of useful life is typical)
• See financial statements for further details
Background
• The company is recognized as a premium provider.
• In 2016, the company sold a portion of its fleet and its real estate holdings, resulting in a substantial
influx of cash.
• Employees (excluding pilots) have frequently discussed unionizing, but have not acted in this
direction.
• The management team is experienced and focused on revenue growth and customer satisfaction.
• Customer feedback at or above industry benchmarks (at industry benchmarks 60th percentile or
higher; positive feedback):
o On-time arrivals/departures
o Airplane cleanliness
o Amenities
o Employee courtesy
o In-flight entertainment
• Customer feedback below industry midpoint (negative feedback):
o Frequent flier program (none)
o Check-in convenience and speed
o Baggage handling
o Convenient departure times
Internal Process Highlights
• The reservation system is an early version of Radixx Galaxy; cloud-based upgrades have not been
implemented.
• Customer check-in and ticketing is manually processed using hard-copy tickets.
• Bookkeeping is accomplished using QuickBooks and an external accounting firm.
• HR hiring and benefits packages are administered by a third-party provider.
• On-ground operations teams rated very good against industry-standard benchmarks.
Human Resource Highlights
• Employees: 165
• Employees with a post-secondary degree (two-year or higher): 75%
• Average turnover rate: 12% annually
• Internal training offered:
o FAA Basics (five-day course, required of all new employees)
o FAA Safety Assurance System (online two-hour course; all new hires)
o Customer Service (eight hours annually)
o Regulation refreshers (20 hours per year)
o Quality Control Through Six Sigma (optional, up to eight hours per year)
o Using MS Office (on-demand, online offerings; optional
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MBA 620 Company A Information
Location, Size, and Age of the Firm
Customer Segment and Target Market
Major Competitors
Company Leadership
Company Strategy and Direction
Current Financial Highlights
Background
Internal Process Highlights
Location, Size, and Age of the Firm
• Name:
• Location: Orlando, FL
• Size: 98 employees
• Age: began operations in 1988
Customer Segment and Target Market
• Market: Florida and nearby destinations
• Destinations: eight (the Bahama Islands; Savannah, Georgia; Atlanta, Georgia; Tampa, Florida; Fort
Myers, Florida; Miami, Florida; Tallahassee, Florida; and New Orleans, Louisiana)
• Market segment: tourists and business
• Aircraft capacities: 12–50 seats
• Customer segment: vacationers, tourists, business travelers
• Retention: 40% repeat customers
• Seat occupancy average: 62% (middle of industry benchmark data)
• Average customer fare: $249 USD
Major Competitors
• Delta Connection
• American Eagle
• Sun Country
• Frontier
Company Leadership
Privately held, with a board, president, VP admin, CFO, COO, VP sales
Company Strategy and Direction
As a smaller player, the company is more of a follower than a leader; however, the new president has a desire to
shake things up. The image of the company as cheap transportation is no longer sufficient, and the leadership
team seeks to demonstrate that even a small company can be an innovation leader. They hope to do this by
emphasizing the potential benefits of agile problem solving and a lean and clean working environment.
These 10-year goals were adopted in 2015; they were reaffirmed in 2019 shortly before the arrival of the new
president:
• Demonstrate adaptability, flexibility, and speed in decision making and innovation
• Build the best workforce; be a winning team
• Do the right thing; provide excellence in customer service
• Enjoy the short run; invest in the long run
Current Financial Highlights
• Annual revenues: $26-27 million
• Annual growth YoY: 3%
• Gross profit margin: 33%
• Net profit margin: 0.2%
• Aircraft in fleet: 40
• Average age of aircraft: 18 years (25 years of useful life is typical)
• See financial statements for more information
Background
• The company is known as a value leader.
• In 2016, the company sold its ownership in a regional hotel chain, resulting in substantial cash holdings.
• The company has strong business relationships with area employers in the theme park industry.
• The company president is new this year; prior experience has been heavily influenced by organizational
transformation initiatives.
• Turnover among employees is higher than many airline companies, but average for the central Florida
economy; maintenance employees are increasingly more difficult to find and retain; overtime is common
in the maintenance department.
• Wage levels in the Orlando area are growing, resulting in upward pressure in compensation.
• Customer feedback received that is at or above industry benchmarks (at industry benchmarks 60th
percentile or higher; positive feedback):
o Short wait times at counter
o Ease of modifying reservations
o Cost
o Overall value
• Customer feedback received below industry midpoint (negative feedback):
o Airplane cleanliness
o Amenities
o Food and beverages
o In-flight noise
Internal Process Highlights
• Within the last 30 days, an investment and joint venture was established with SITA Horizon software
system, including an industry-standard customer portal and a hospitality industry interface functionality.
• Bookkeeping is integrated with the new SITA system; an external accounting firm will still be used for
audits.
• HR function is provided by a consortium partner in the local area (outsourced).
• On-ground operations teams rated fair against industry-wide efficiency standards.
Human Resource Highlights
• Employees with a high school diploma or higher: 95%
• Employees with a post-secondary degree or diploma: 60%
• Average turnover rate: 18% annually
• Internal training offered:
o Regulatory refresher courses (as needed, with supervisor approval)
o Quality and Customer Service Principles (self-study)
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MBA 620 Company B Information
Location, Size, and Age of the Firm
Customer Segment and Target Market
Major Competitors
Company Leadership
Company Strategy and Direction
Current Financial Highlights
Background
Internal Process Highlights
Human Resource Highlights
