2022-06-23-德勤-Off_to_a_flyer-cash_optimization_in_the_aviation_industry_4页_1mb

Deloitte: Cash Optimisation in the Aviation Industry Summary

Core Content

This document outlines a case study on how Deloitte helped an international airline improve its free cash flow through targeted working capital initiatives. The airline, with a turnover of around £3bn, faces significant challenges in the aviation sector, including excess capacity, rising costs, and declining profits and free cash ratios. These issues have made insolvency a real threat, prompting the need for urgent cash flow improvements.

Main Challenges

• Declining Free Cash Flow: Over the past four years, the airline has experienced a decline in free cash flow and profits, with increased debt and leverage.
• Payment Terms Pressure: Card acquirers are becoming more cautious, demanding less favorable payment terms or requesting cash collateral, which reduces the airline's cash flow.
• Uncertainty in the Sector: The aviation industry is under pressure due to factors like price wars and exchange rate fluctuations, leading to longer payment terms in regions such as Europe compared to the US.

Deloitte's Approach

Deloitte deployed a Value Creation Services (VCS) team to work closely with the airline over a five-week period. The team focused on:

• Shortening Cash In Times: Reducing the time between ticket issuance and payment receipt.
• Extending Cash Out Times: Delaying outgoing payments to suppliers where possible.
• Data Analytics and Process Mapping: Collecting and analyzing all cash flow data to identify inefficiencies and opportunities.
• Real-Time Dashboards: Creating operational KPI dashboards to monitor performance and provide actionable insights.
• Scenario Testing: Hypothesizing and testing alternative scenarios with key stakeholders to evaluate potential initiatives.

Key Initiatives Implemented

1. Payment Term Adjustments: The airline changed its card acquirer to secure shorter payment terms and eliminate the need for cash collateral.
2. Standardisation of Payment Terms: Extended payment terms to suppliers.
3. Payment Run Policy: Implemented a best-in-class payment run policy to optimize cash outflows.
4. Reducing Booking to Ticket Issuance Time: Improved the timing between booking and issuing tickets to enhance cash flow.
5. Direct Debit for Holiday Business: Developed a business case for direct debit payments for the holiday segment, improving cash flow and offering a more attractive online process to customers.
6. Cash Flow Forecasting: Reshaped the client's cash flow forecasting process using insights from transaction services, analytics, and restructuring.

Cash Improvement Outcomes

• Total Cash Improvement Identified: Up to £180 million over 18 months.
• Realised Cash Improvement: £80 million within 10 months through the most material initiatives.
• Impact on Capital Expenditure: Even half of the identified improvement could allow for an 8% increase in capital expenditure, potentially sufficient to purchase a new aircraft.

Key Learnings and Opportunities

• Transaction Complexity: Airline revenue often consists of numerous low-value transactions through various payment channels, making it challenging to optimize cash flow.
• Data Analytics Importance: Developing robust data analytics is essential to gain visibility and insights across a large number of transactions.
• Days Sales Outstanding (DSO): DSO is a critical metric indicating the time between ticket issuance and payment receipt, and it reflects the perceived risk of the airline sector by card acquirers.
• Regional Variations: Payment terms vary by region, with Europe having longer terms due to greater uncertainty. Understanding these dynamics can help in securing better terms.
• Sector-Wide Potential: Targeted working capital initiatives could improve free cash flow by 20 to 40% across the aviation sector, with significant implications for operational and financial flexibility.

Contacts

• Dave Sharman – Partner
  Email: dsharman@deloitte.co.uk
  Phone: +44 20 7007 9354

• Saverio Mitrani – Director
  Email: smitrani@deloitte.co.uk
  Phone: +44 20 7303 0947

• Gautam Agnihotri – Associate Director
  Email: gautamagnihotri@deloitte.co.uk
  Phone: +44 20 7007 6657