Case Study: AirTex Aviation
AirTex Aviation was a fixed – base operation at San Miguel airport in Texas responsible for servicing the non-airline aviation market. The company was headed by Bill Dickerson and was close to bankruptcy. For the fiscal year of 1989 it made a loss of $500,000 on sales of $10M. Ted Richards and Frank Edwards purchased it on December 28, 1989 for $500,000. They knew each other from Harvard Business School and sought to find a business and turn it around using their expertise. Neither had any experience in the aviation market.
The business that Frank and Ted purchased had several informal departments:
1. Fuel line activity – Headed by Will Leonard and consisting of 12 employees, operations generated revenue through retail fueling, wholesale fueling, fuel handling, rental cars and tie-downs (storage of air craft)
2. Service and Parts – ...view middle of the document...
6. Accounting – Sarah Arthur who had worked for the previous owner for 20 years managed the accounting department. Sarah effectively managed the company in the absence of the owner and formally had no accounting training.
Frank and Ted sought out to implement new management and control systems so that AirTex could become financially stable. Ted assumed operational duties and Frank turned his attention to specific and critical projects. They sought to:
1. Revamp the management of AirTex.
2. Install a control system that would support the management and provide the necessary information for decision-making.
3. Taking control of the company’s operations from Sarah Aurther.
The aim was to decentralise the company into separate divisions with their own cost centres. They wanted the department managers to take ownership of the department’s profitability and have access to the appropriate information.
1. Accounts Payable: Ted worked on having good relationships with the company’s suppliers so that credit arrangements became manageable.
2. Sarah Aurther was effectively made redundant and a new accounts person was hired.
3. Accounts receivables were handed over to the departments. They were given incentives to grow profits (10%) and charges if the receivables became too old.
4. Ted worked on a positive relationship with the bank. In the beginning, AirTex owed a $300,000 bank note, which had been outstanding for several years and posed a considerable risk to AirTex. Though being transparent with the bank manager (Hal Lattimer), AirTex had a very flexible relationship with the bank.
5. The accounting system internally was overhauled. Each department began to produce monthly profit and loss statements. A DDR was also produced (Daily department report) outlining the previous days business activities.
6. Aircraft sales were reinstated and the old sales people rehired.
7. Avionics department was closed down.
There were marked improvements in company profitability in the first few months of operation through reorganisation and implementation of adequate management controls.