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The Relevance of Restructuring and Turnaround Techniques and Strategies to the Air Cargo Industry

Friday, December 15, 2017   (0 Comments)
Posted by: Rachael Negron
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Foreword by the Secretary General

How NOT to come to the point of Restructuring and Turnaround


When you get to the next article, you may start wondering – why we offered our pages to an expert on “restructuring and turnaround”. Steven T. Kargman was recently a speaker at the AGM of African Airlines Association (I wrote about the event and TIACA-AFRAA MoU on 17 November), and many agreed that it was one of the most pragmatic and useful presentations. Like in the aviation safety, where “accident prevention” is to have higher priority over “accident investigation”, when all the bad things already happened, the “hard-headed assessment of the source and severity of financial, business or operational challenges”, using Steven’s words, is to precede the point when one has to restructure and turnaround the company.


Steven knows firsthand how to:

  • correctly diagnose what is the exact cause of the underlying problem,
  • apply restructuring and turnaround tools and techniques,
  • revise business plan and overall business strategy which takes account of any new circumstances or realities…


It’s a worthwhile reading. It’s worth knowing that such a source of knowledge and consultancy exists.


Vladimir Zubkov

The Relevance of Restructuring and Turnaround Techniques and Strategies to the Air Cargo Industry


by Steven T. Kargman


Kargman Associates



Inevitably, businesses across the board, regardless of the industry, may from time to time face periods of financial distress and/or experience serious operational or business challenges.The air cargo industry which consists of such a diverse set of stakeholders—from cargo airlines to freight forwarders to ground handlers to shippers, among others—is not immune from these challenges.


Yet, the key for companies in the air cargo industry is to address any such challenges at the earliest possible date.A crucial first step in this regard is for the companies to have a pro-active and comprehensive monitoring and risk identification program in place that will permit the companies to identify problems at an early stage before they become too serious and difficult to resolve or mitigate.


Companies in the air cargo industry can potentially face a range of different pressures, from financial pressures to business and operational/performance pressures.There are many reasons that companies in the air cargo industrymight face financial pressures.For example, if the price of jet fuel increases significantly, that could create major financial pressures on cargo airlines and potentially reduce their profit margins, particularly if the airlines have not hedged their fuel costs.And, to the extent that such increased costs are passed on to freight forwarders and shippers themselves, their cost of doing business and their profit margins also may also be negatively affected.Alternatively, financial pressures on companies in the air cargo industry may result simply from the need for cargo airlines to make high debt service payments to their lenders (whether banks, bondholders, or otherwise) and/or high lease payments to their lessors.


Similarly, there could also be a broad range of factors that might adversely affect the business or operational performance of companies in the air cargo industry.For instance, cargo airlines may have too expansive a route structure, including routes that are not profitable.Or there may be a simple lack of efficiency or productivity in the operations of the companies.Aircraft may not be turned around quickly enough at the destination airports, ground handling operations may not be processing the cargo with sufficient speed and precision, or freight forwarding operations may not be streamlined enough to avoid higher than necessary costs in moving the cargo from its point of origin to its destination, particularly with respect to the cost ofso-called last mile delivery.


When a company in the air cargo industry is faced with major financial, business or operational challenges, it first needs to correctly diagnose what is the exact cause of the underlying problem as well as assess the severity of the problem.Is the company facing a discrete set of problems or are the problems much more pervasive, and are the problems short-term or longer term in nature?Only after conducting such a comprehensive and detailed assessment can a company begin to focus on developing appropriate and effective strategies for addressing such challenges.Ideally, if the problems have been detected at an early stage, the company can at that time develop a prompt and effective response that will resolve or mitigate the problems before the problems worsen and become even more difficult to resolve or mitigate.


Nonetheless, if the problems facing a company in the air cargo industry have not been adequately addressed at an early stage when such problems may be more manageable, it may be necessary for the companyto consider using the tools and techniques from the restructuring and turnaround discipline that are often employed by troubled companies (irrespective of the industry in question) in order to overcome such challenges.When properly applied, restructuring and turnaround tools and techniques can put a troubled company back on a more stable and sustainable path going forward.


Thus, companies in the air cargo industry that are experiencing serious difficulties servicing their outstanding debt might well consider applying debt restructuring techniques.The aim of such techniques is to right-size the overall debt burden so that, after a debt restructuring is completed, the company is left with a debt burden that it will find manageable to service in the future, i.e., a sustainable debt burden.Likewise, the company’s schedule for making debt service payments might be adjusted to the extent necessary so that it will be aligned with the company’s timetable for generating cash flow.


For companies in the air cargo industry with serious operational or business challenges, they will need to consider revising any existing business plan to ensure that the revised business plan takes account of any new circumstances or realities (e.g., fluctuations in demand, increased costs, developments in business such as the advent of e-commerce and the increasing digitalization of various business functions, etc.) that the companies had not anticipated when formulating the initial business plan. In other words, such companies may need to revise their overall business strategy set forth in their original business plan in order to ensure their long-term viability.


Moreover, to the extent that companies in the industry are facing serious operational or performance challenges, they may need to revisit and possibly revise any existing operating plans.The aim of the exercise would be to identify areas where the companies could achieve greater efficiency, productivity and profitability in their operations and performance.


In short, companies in the air cargo industry, when faced with financial and/or business or operational challenges,should take the initial step of making a hard-headed assessment of the source and severity of these challenges.All things being equal, it will be generally preferable for such companies to both identify and address problems at the earliest possible stage before those problems may become even more serious and likely more difficult to resolve.However, to the extent that the problems have not been identified and addressed at an early stage, it may be necessary for the companies in questionto develop and execute carefully tailored restructuring and turnaround strategies for addressing anyserious challenges that the companies may then be confronting.


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