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Scenario
You have been asked to evaluate Company A and Company B and make your recommendation for acquiring one or both companies. Based on your initial assessment, you have created balanced scorecards for both companies. You are now ready to analyze the information you have gathered so far about the two companies so that you can compare the costs, benefits, and risks associated with acquiring each company and make a well-informed decision.
In this milestone, you will first analyze the current situation of TransGlobal Airlines using the given data and other sources to understand their business environment. You will also evaluate the performance of Company A and Company B using the balanced scorecards you created in Milestone One.
Prompt
Write a report with your performance evaluation of the three companies involved in the acquisition.
Specifically, you must address the following rubric criteria:
Situation Analysis of TransGlobal Airlines (parent company). Use the provided TransGlobal
Company Information
and
Financials
to highlight the company’s current business environment.
Internal environment: culture, leadership, internal processes, human resources, operations, and financial performance
Balanced Scorecard Analysis of Company A. Using the balanced scorecard for Company A from Milestone One, describe your analysis of Company A’s performance. Perform a cost-benefit-risk analysis to explain whether the benefits justify the costs of acquisition.
Opportunity cost: What will it cost to move forward with this opportunity?
Risk: Identify and explain the magnitude (low, medium, or high) of the risks this acquisition poses to the parent company related to its market, financial, cultural, and operational environments.
Balanced Scorecard Analysis of Company B. Using the balanced scorecard for Company B from Milestone One, describe your analysis of Company B’s performance. Perform a cost-benefit-risk analysis to explain whether the benefits justify the costs of acquisition.
3/4/2021
TransGlobal Airlines, Inc.
Consolidated Balance Sheet
(For instructional purposes only)
12/31/2019
(in millions, except share data)
ASSETS
Current Assets:
Cash and Cash Equivalents
$
Accounts receivable, net of an allowance for
uncollectible accounts of $4.1 and $3.8 at December 31,
2019 and 2018, respectively
899
230
Fuel Inventory
Expendable parts and supplies inventories, net of an
allowance for obsolescence of $25.8 and $32.12 at
December 31, 2019 and 2018, respectively
164
397
Prepaid Expenses and Other
Total Current Assets
908
$
2,598
Noncurrent Assets:
Property and Equipment, net of accumulated
depreciation and amortization of $5,360 and $4,983 at
December 31, 2019 and 2018, respectively
9,860
1,772
3,080
Operating Lease Right-of-Use Assets
Goodwill
Identifiable Intangibles, net of accumulated
amortization
1,626
200
1,186
Cash Restricted for Airport Construction
Other Noncurrent Assets
Total Noncurrent Assets
Total Assets
$
17,724
$
20,321
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current Maturities of Debt and Finance Leases
Current Maturities of Operating Leases
Air Traffic Liability
Accounts Payable
72
252
1,611
1,028
1,165
1,014
232
339
Accrued Salaries and Related Benefits
Loyalty Program Deferred Revenue
Fuel Card Obligation
Other Accrued Liabilities
Total Current Liabilities
$
6,362
Noncurrent Liabilities:
Debt and Finance Leases
2,794
Pension, Postretirement, and Related Benefits
Loyalty Program Deferred Revenue
Noncurrent Operating Leases
Deferred Income Taxes, net
Other Noncurrent Liabilities
2,662
1,105
1,667
458
436
Total Noncurrent Liabilities
$
9,123
Commitments and Contingencies
Stockholders’ Equity:
Common Stock at $0.0001 par
value; 1,500,000,000 shares authorized
3,505
3,922
(2,516)
Additional Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Loss
Treasury Stock, at cost
Total Stockholders’ Equity
Total Liabilities and
Stockholders’ Equity
Copyright, SNHU, 2021. All rights reserved.
(74)
$
4,893
$
20,321
ines, Inc.
nce Sheet
only)
31/2019
12/31/2018
$
493
729
186
146
443
$
1,996
8,923
1,888
3,080
1,521
358
1,212
$
16,981
$
18,978
LDERS’ EQUITY
478
301
1,468
937
1,035
941
339
352
$
5,850
2,599
2,885
1,150
1,827
51
305
$
8,818
3,675
3,161
(2,464)
(62)
$
4,310
$
18,978
3/4/2021
TransGlobal, Inc.
Consolidated Statement of Operations (INCO
(For instructional purposes only)
All values in millions, except per-share
data
2019
Operating Revenue:
Passenger
Cargo
Other
$13,313
237
1,252
Total operating revenue
14,803
Operating Expense:
3,535
2,683
Salaries and related costs
Aircraft fuel and related taxes
1,129
832
813
Regional carriers expense, excluding fuel
Contracted services
Depreciation and amortization
Passenger commissions and other selling
expenses
628
555
Landing fees and other rents
Aircraft maintenance materials and outside
repairs
551
517
394
392
133
558
$12,718
Profit sharing
Passenger service
Ancillary businesses and refinery
Aircraft rent
Other
Total operating expense
Operating Income
$
2,084
Non-Operating Expense:
Gain/(loss) on investments, net
Miscellaneous, net
(95)
37
(75)
Total non-operating expense, net
(132)
Interest expense, net
Income Before Income Taxes
1,952
Income Tax Provision
(451)
Net Income
1,501
Basic Earnings Per Share
Diluted Earnings Per Share
$2.31
$2.30
Cash Dividends Declared Per Share
$0.48
Copyright, SNHU, 2021 All rights reserved.
Global, Inc.
Operations (INCOME STATEMENT)
purposes only)
$
2018
2017
$12,519
272
1,202
$11,635
234
1,085
13,994
12,954
3,383
2,840
3,167
2,127
1,083
685
733
1,091
664
700
611
523
575
473
496
410
371
534
124
543
$12,336
501
335
354
471
111
507
$11,076
1,658
$ 1,879
(98)
12
50
(125)
(22)
(36)
(147)
1,622
1,732
(383)
(723)
1,239
1,009
$1.79
$1.79
$1.40
$1.40
$0.41
$0.32
3/4/2021
TransGlo
Consolidated State
(All data are for educational p
(in millions)
Year ending December 31,
Cash Flows From Operating Activities:
2019
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization
$
1,501.1
$
812.76
Deferred income taxes
Pension, postretirement and postemployment payments greater
than expense
Changes in certain assets and liabilities:
Receivables
$
463.85
$
(290.34)
$
(244.05)
Fuel inventory
Prepaid expenses and other current assets
Air traffic liability
Loyalty program deferred revenue
$
$
$
$
(43.77)
29.60
142.96
27.40
Profit sharing
Accounts payable and accrued liabilities
$
$
111.47
45.35
$
96.67
$
2,653.0
Flight equipment, including advance payments
$
(1,053.03)
Ground property and equipment, including technology
$
(501.32)
Purchase of equity investments
$
(53.53)
Sale of equity investments
$
87.86
Other, net
Net cash provided by operating activities
Cash Flows From Investing Activities:
Property and equipment additions:
Purchase of short-term investments
$
–
Redemption of short-term investments
$
64.87
Other, net
$
18.26
$
(1,436.9)
Payments on debt and finance lease obligations
$
(1,045.47)
Repurchase of common stock
Cash dividends
$
$
(638.30)
(308.60)
Fuel card obligation
$
(106.75)
Proceeds from short-term obligations
$
551.08
Proceeds from long-term obligations
$
647.75
Other, net
$
(6.61)
$
(906.9)
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted
Cash
$
309.23
Cash, cash equivalents and restricted cash at beginning of period
$
865.35
Cash, cash equivalents and restricted cash at end of
period
$
1,174.6
Supplemental Disclosure of Cash Paid for Interest
$
151.5
Treasury stock contributed to pension plans
$
–
Right-of-use assets acquired under operating leases
$
146.1
Flight and ground equipment acquired
$
204.7
Operating leases converted to finance leases
$
59.8
Net cash used in investing activities
Cash Flows From Financing Activities:
Net cash used in financing activities
Non-Cash Transactions:
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Ba
(in millions)
2019
Current assets:
Cash and cash equivalents
$
907.5
Restricted cash included in prepaid expenses and other
$
66.8
$
200.3
Noncurrent assets:
Cash restricted for airport construction
Total cash, cash equivalents and restricted cash
$
1174.6
Copyright, SNHU, 2021 All rights reserved
TransGlobal, Inc.
Consolidated Statement of Cash Flows
(All data are for educational purposes only)
ber 31,
Year ending December 31,
2018
$
1,239.1
$
733.40
$
429.52
$
(248.77)
$
34.01
$
$
$
$
102.03
(138.56)
93.53
100.45
$
$
73.37
(131.63)
$
(77.78)
$
2,208.7
$
(1,166.39)
$
(461.01)
$
–
$
8.82
$
(45.66)
$
241.21
$
39.68
$
(1,383.4)
$
(961.07)
$
$
(495.97)
(286.24)
$
2.20
$
–
$
1,179.30
$
18.26
$
(543.5)
$
281.84
$
583.51
$
865.3
$
118.4
$
–
$
–
$
29.3
$
2.2
`
eported within the Consolidated Balance Sheets to the total of the same such amounts shown above:
19
Year Ended December 31,
2018
$
$
492.8
$
14.8
$
357.7
865.3
Year ending December 31,
2017
$
1,009.3
$
699.71
$
706.01
$
(1,039.80)
$
(134.78)
$
$
$
$
(125.02)
(17.95)
89.43
125.65
$
$
(16.06)
300.73
$
(15.43)
$
1,581.7
$
(851.49)
$
(373.79)
$
(392.05)
$
$
(291.28)
$
183.90
$
66.44
$
(1,658.3)
$
(396.14)
$
$
(528.09)
(230.19)
$
200.28
$
–
$
772.76
$
(48.49)
$
(229.9)
$
(306.40)
$
889.91
$
583.5
$
122.8
$
110.2
$
–
$
82.2
$
–
2017
$
571.2
$
12.3
$
$
–
583.5
MBA 620 TransGlobal Airlines Information
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 webbased 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
BASIC BALANCED SCORECARD TEMPLATE
Company A
ADDRESS
Miami International Airport (MIA)
Category
STRATEGIC OBJECTIVES
CITY
TARGET VALUES
KEY PERFORMANCE INDICATORS
CUSTOMER/MARKET
INTERNAL PROCESSES
FINANCIAL
YEAR 1
LEARNING AND
GROWTH
STATE
Miami
YEAR 2
FL
ZIP
KPI ACTION PLAN DETAILS
YEAR 3
EXAMPLES OF PROGRAMS/INITIATIVES
BUDGETS
1. Expanding the routes of the airline 2. Leasing or
1. Investing in cost reduction initiatives like
acquiring new models 3. Introducing fare bundling
cutting back on unnecessary costs 2.
options
Creating new marketing and sales efforts to
Revenue Growth
Increase revenue by 10% each year
27,981
28,772
29,580
Cash Flow Management
Maintaining a health cash flow
62,265
61,708
44,319
Profitability
Increase net profits by 15%
1,846
(170)
2,380
target new consumers and create market
Asset Efficiency
Maintaining tangible assets
104,136
104,334
86,439
expansion $500,000 budget
Turnaround time for flights
Minimizing of in-time for flights
Safety Incident Rate
Decreasing negative incidents that occur
Customer Retention Rates
% of customers retained
70%
80%
90%
1. Reducing in flight times from boarding to
cleaning crew coming on after passengers de-plane
2. Training all airline employees on safety 3.
Creating a customer loyalty program
Check-in time speed
Increase check in time speed
Checked bags that make it to destination
% of bags at arrival
90%
91%
92%
Customer satisfaction
% satisfaction rate
75%
80%
85%
1. Ground operations improvement 2. Safety
Training program 3. Customer Loyalty
program $200,000 budget
1. Implementing a smoother and faster check
The aim here is to create overall better success for
in process 2. Having employees handle the
the customers by listening to the customer
bags better so less bags are damaged and
feedback that was below industry midpoint and
arrive at destination 3. Market research and
build up customer satisfaction from there
expansion for other areas to improve
customer satisfaction in $250,000 budget
Employee training
% of employees who participate in annual training
Innovation rates
% of employees who work on innovation projects
95%
96%
97%
1. Tracking employee training and development to
increase employee skills. 2. More innovation time
for employees
$100,000 budget
STUDENTS KPI SELECTION RATIONALE
SELECTION RATIONALE
CAUSE-EFFECT RELATIONSHIP
It’s crucial of company A to monitor it’s finances
Investing and expanding in the airline company is
like proftiability, cash flow, assets, and overall
necessary to create long term success. By
revenue to ensure sustainable growth in the
expanding the airlines aircraft and routes and
future.
creating new marketing campaigns, this creates
room for revenue growth.
Overall better safety trainings and on-time
On time departure rate is crucial to turn around
over and customer satisfaction. Better safety and
a customer loyalty program also create overall
customer satisfaction
departures brings repeat customers who overall
enjoy the airline and can bring company A a new
edge in the market. A customer loyalty program
drives customers to continue wanting to fly with
the airline to gain points and receive rewards,
therefore increasing customer retention rates.
A good customer experience creates better
Satisfied customers will repeat business and
customer satisfaction which is essentail for
recommend the airline to others creating higher
retaining current customers and attracting new
market share, revenue growth, and long term
customer base.
profitability
Well trained staff provides a personalized
Investing in employee training continues to
deliver exceptional customer service and builds
brand loyalty. Innovation is key to staying ahead
in the competitive airline space.
expeience for each employee to resolve issues
that customers are experiencing and builds
stronger customer relationships. Investments in
R&D drives innovation across the organization
and leads to market leadership and sustainable
competitive advantage.
3
BASIC BALANCED SCORECARD TEMPLATE
COMPANY B
ADDRESS
Orlando International Airport
Category
STRATEGIC OBJECTIVES
CITY
KPI TARGET VALUES
KEY PERFORMANCE INDICATORS
CUSTOMER/MARKET
INTERNAL PROCESSES
FINANCIAL
YEAR 1
YEAR 2
Ticket revenue
27,981
26,302
27,091
Net profit margin
Increasing net profits by 5% each year
2,025
(529)
79
Cost reduction
Decreasing expenses
Increasing maintenance %
increase performance rate %
ZIP
EXAMPLES OF PROGRAMS/INITIATIVES
BUDGETS
1. Implementing initiatives to streamline operations
Process improvement initiatives $100,000
and reduce unnecessary expenses to improve
overall profitability 2. Partnering with hotels and car
rentals to increase ticket revenue
60%`
70%
80%
20%
21%
22%
Source HR internally
On-time performance rate
FL
KPI ACTION PLAN DETAILS
YEAR 3
Annual revenue growth rate
1. Look to start hiring HR internally to reduce
externally hiring to create a better working
company enviornment 2. Conduct a review of
operational processes and workflows to streamline
1. Moving HR internally 2. Technoloy and
operations upgrades $400,000
operations and improve on-time performance.
Improve cleanliness of airline
1. Create a customer loyalty program for overall
Increase market share in key destinations
Market share increase
5%
7%
9%
customer satisfaction 2. Implement stricter cleaning
Increase customer satisfaction score
Customer satisfaction %
75%
80%
85%
protocols and regular inspections to maintain a
higher standard of aircraft cleanliness, addressing
customer feedback and enhancing satisfaction 3.
Launch targeted marketing campaigns to increase
1. Improving cleanliness program 2. New
marketing campaigns for key destinations 3.
Enhance customer loyalty program $350,00
brand visibility, attract new customers, and gain
market share
Decrease employee turnover rate
LEARNING AND
GROWTH
STATE
Orlando
Increase quality trainings for employees
Employee turnover rate %
No. employees who partook in trainings
18%
16%
14%
90%
92%
94%
1. Develop a reward system for employees to make
them feel more appreciated by the company to
reduce turnover 2. Allocate employees to pursue
1. Employee development fund 2. Employee
additional education or training programs relevant
rewards program $100,000
to their roles, creating an environment of
continuous learning and skill enhancement
increased customer retention and repeat
Company B has a low net profit margin of 0.2%,
business. Satisfied customers are more likely to
so improving their net profit margin is critical for
choose Company B for their travel needs and may
ensuring the company’s financial growth.
be willing to pay premium prices for good service.
Efficient maintenance processes are important for
ensuring the safety, reliability, and operational
performance of Company B’s aircraft fleet. With
turnover among maintenance employees being
higher than industry averages and finding skilled
employees becoming increasingly difficult,
optimizing maintenance efficiency is essential.
Company B can reduce operational costs and
Efficient maintenance processes directly impact
the reliability of Company B’s aircraft fleet.
Reliability in flight schedules enhances customer
satisfaction and reduces flight delays or
cancellations to foster a positive consumer
experience with on-time departures and arrivals.
maintain compliance with regulatory standards.
Customer satisfaction directly influences customer
retention and loyalty. Given the competitive
nature of the airline industry and Company B’s
emphasis on providing excellence in customer
service, monitoring and improving customer
satisfaction is necessary for success. By
prioritizing this, Company B can enhance its
reputation, attract new customers, and maintain
Increasing market share in key destinations can
result in higher revenues and improved
profitability. As Company B captures a larger
share of the market in its target destinations and
increase pricing power and enhance market
position.
their target customer base.
Investing in employee training and development
fosters a skilled and motivated workforce, leading
to improved job performance, employee
satisfaction, and retention. Prioritizing employee
training participation rate aligns with Company
B’s goal of building the best workforce and being
a winning team for long-term success in the
organization.
Employees who are well trained with higher
education can deliver high-quality service, handle
customer inquiries or issues effectively, and
provide a positive customer experience. A higher
employee training participation rate indicates a
commitment to continuous improvement and skill
development among staff.
FINANCIAL
Higher customer satisfaction scores can lead to
efficiency in generating profit from its operations.
INTERNAL PROCESSES
The net profit margin reflects the company’s
Category
CUSTOMER/MARKET
CAUSE-EFFECT RELATIONSHIP
LEARNING AND
GROWTH
STUDENTS KPI SELECTION RATIONALE
SELECTION RATIONALE
3
