TMNG Global Advises An Airline Industry Joint Venture On A New Business Plan

Challenge

A joint venture was created by the international airlines to consolidate all of their data networking needs, especially their cargo and reservations systems. The ownership of each of the individual airline networks was transferred to the joint venture and the costs of running the network was charged back to each airline on a usage basis. Over time, the network costs increased to such a point that several members were considering pulling out of the joint venture and outsourcing their needed services to a public international telecom provider. Instead, the joint venture suggested a plan whereby it would in turn spin off a separate company which would own the network, add to the services offered, provide telecom services internationally to all that desired them, as well as provide for the needs of the member airlines. The joint venture needed outside financing for this endeavor and so required help in Due Diligence activities as well as assistance in the development of the final approved Business Plan.

TMNG Global Solution

A TMNG Global team was engaged by the joint venture to evaluate both the network and the plan. The plan that existed at that stage was rudimentary and needed to be fleshed out prior to financial approval. In order to make the concept viable, the existing network, using airline proprietary protocols, would need to be upgraded to a communications standard, one that could carry both data and voice services. Additionally a pricing model would have to be developed. There were many complications, including the fact that some of the airlines had transferred assets, which would provide them with service credits. Clearly, the original airlines would expect to receive ‘favored’ pricing, but competitive pricing varied based upon the country in which the service was provided. Furthermore, as the new company added assets, either from outside financing or funded through cash flow, the perceived value of the original networks diminished and required a reassessment of credits and paybacks.

The team therefore put together a plan outlining the various activities necessary to create this new public carrier, including network changes, new systems, processes, products, and accounting. Simultaneously, the current value of the assets was determined and ongoing value of the entity was modeled, using the new proposed pricing model. The overall project took approximately six months.

Benefits to the Client

Private funding consisting of several hundred million dollars was obtained. The plan was implemented, expanding and upgrading the network, and adding new services to the mix. After a few years the new entity was taken public, providing the owners with a substantial return on their investment. After its formation, the new entity asked us to assist them once more; this time in valuing an airline’s network. That project ended with the merging of the two networks and the client company providing for the airline’s needs on an outsourced basis. This of course expanded the reach of its network and increased income.