Project Submission: Acquisition ProposalPrevious Next Scenario You are a former Navy officer and fighter pilot, and you are now the controller of a division of TransGlobal Airlines, a large organizat

TransGlobal Confidential Internal Memo

Interviews W ith Company Leaders : Company A

The notes below are a summary of recent conversations with company leaders at Company A. As much

as possible, I have summarized these in a question -and -answer format. I tried to transcribe actual

statements as they were made, but I was unable to capture every detail of each conversation.

As an introductory note, I’ll observe that smaller firms tend to be far less structured and less

bureaucratic than TransGlobal. Sometimes, t his translates into quicker and more flexible decision

making. It also can result in some elements of good management falling through the cracks to some

degree. Also, I’ll note that my opportunities for discussions were quite limited, so these notes are not

comprehensive.

INTERVIEW #1: Vice President of Sales

Why do your customers come to your airline? Why do some customers choose other airlines? How do

your customers make their buying decisions?

“Our customers are very often repeat customers; close to two -thirds of our sales each year go to

individuals who have flown with us before. Plus, we have extraordinarily positive word -of-mouth

advertising . This is supported by our Bring a Friend promotional program , which encourages

customers to send us additional customers. This has been very popular. Just last year, we conducted a

poll and learned that 75% of our customers would recommend us t o a friend or family member.

“Also , we provide our customers with some special features on our flights, and we don’t charge for

the first checked bag, either. Customers appreciate the feeling of going first class . We also add in little

extras at times to p rovide our passengers with a sense of excitement and entertainment. This is

generally done by flight staff and ground staff; they use little things like special treats or small toys for

kids, things like that. A year ago, we overdid this a bit and added un necessary expenses to our Cost of

Goods Sold , but we’ve corrected that in the past 12 months.

“We hold about 19% of the overall regional market, though that is about three points down this year

from prior years. A few of the bigger companies have started moving into regional specialty markets

in the past 10 years, cutting into our traffic. We’re still competing well, though, especially because our

fleet is built around the smaller volumes.

“As a contrast, our competitors usually emphasize low price , and w e do lose some customers to them

for that reason. A few of them have also started bundling services, for example , including hotel Page 2 of 3 pages Confidential – For Internal Distribution Only

arrangements, destination -specific restaurant dining packages , and golf and recreation options along

with their flights. We’ve looked into this a bit, but our present IT systems aren’t built for that sort of

complexity; it would take a sizable investment to go in that direction. We could afford such an

investment, but even so , we’re not sure it’s justifiable. ”

NOTES: The VP of Sales also indicated that he would like to hire additional personnel and use a New

York advertising firm to boost traffic in the off -season. He indicated some difficulty in selling this idea

to others in the company ; he seemed confident that he could boo st overall gross revenue by $1 –2

million with an investment of just $100,000.

INTERVIEW #2: Chief Financial Officer

How would you describe the company’s financial picture? Are you optimistic about the future?

“We’re coming off a great year. Our revenue s hit an all -time high (above $29 million) ; year -over -year

growth is favorable ; and p rofit -wise, our latest net earnings are bouncing back nicely from the prior

year. The prior year was a bummer in many ways —we had some excess costs and a variety of issues

with quality.

“On the other hand, some trends are worrisome. Our two largest costs are personnel and fuel … and

the third is our payments on capital equipment. With a fleet of 55 aircraft, we’ve got a lot of

maintenance, too . As a company, we’re dedica ted to safety first, but some of the more cosmetic and

customer -friendly upgrades hav e been deferred over the years.

“It’s been difficult to acquire new aircraft over t he past 10 years, so our fleet is now showing some

age. There are some more advanced aircraft available, and we do have the available cash to build up

our fleet. Despite the age of our aircraft, they’re still fully safe, of course, but the luxury feel that we’d

like to offer our customers isn’t always apparent, if you know what I mean.”

INTERVIEW #3: Chief Operating Officer

Tell me a bit about your operating processes. Where does your firm excel in delivering value? Where are

there issues or process improvements needed? Do you use total quality management methods? Are you

an innovative company?

“Well , let me start by telling you that I am somewhat new on the job; I’ve only been here for two

months. When I was recruited, the company president advised me that there might be some quality

issues and productiv ity challenges, too —and wow , was she right about that! Our team is really good

at managing t o meet the FAA and other legal and regulatory requirements, but beyond that, this place

is locked somewhere in the last century!

“Don’t get me wrong , we keep our customers happy , sure, but at a large cost. We probably have twice

as many baggage handlers, check -in attendants, customer service specialists , and so on as our next Page 3 of 3 pages Confidential – For Internal Distribution Only

competitor has , all because we’ve not employed technology to the level that w e should have. The

result is buried costs , and these will likely jump up and bite us in the shorts someday soon.

“I’m also concerned about recruitment , especially for pilots and for skilled technicians. Because we

operate in a great location, we have not b een keeping up on our compensation levels, and this may

ma ke recruitment difficult soon.

“On the bright side, our on -time arrival performance is top notch (88% on time , improved from the

prior year at 84% ); lost or delayed baggage is at 2%; and customer sa tisfaction is in the top 10% in the

industry. We get , oh, maybe three passenger complaints a week … and none of those ever amount to

anything much.”

NOTES: The COO went on to explain that his prior employers had emphasized efficiency in all

processes but that the Company A leaders seemed somewhat lax in the pursuit of cost savings and

standardization. He plans to focus on process improvement in the next quarter, starting with what

might be g ood opportunities for staff reductions in some supporting roles.

INTERVIEW #4: HR Director

How do the company’s employees contribute to the success of the company? How would you describe

the culture of working here? What challenges and opportunities do you have?

“We’ve got a strong workforce, from the custodians and cleaning crews all the way to the pilots and

management team. Everyone who needs to take annual refresher courses get s them … but we have

no budget for extras. Sometimes I worry that we’re falling behind and that we’re losi ng our most

valuable employee s.

“Last week, I learned that 15% of our employees had left in the past year —a third of those were

retirements, but the others were all because of more attractive job offers elsewhere. I did some

digging and found that this has been typical for us for the past three years. And, by the way , that

happens to coincide with the arrival of our president, Ms. Huntington.”

NOTES: The HR director made it clear that the company does not make substantial investments in

training and development beyond what is strictly required for licensing and safety. She feels that this

limits the opportunities for creativity and innovation, but she also understands budget restrictions.

Among her concerns are the limited opportunities for upward career mobility and too few career pa th

opportunities in the company. I gained the impression that the HR Director was feeling some sense of

burnout and counting the days until retirement.