by Kent Edward Baxter, Michael Dahlke, Lisa Hollett, Mark Murray, Garrick Robertson & Diana Sahari

FOCUS ON AER LINGUS:

A Strategic Management Case Study

ENVIRONMENTAL SCAN

Stakeholders

- Aer Lingus was the Irish international airline that formed by the Irish government in April 1936 to provide air services from Ireland. Aer Lingus had difficulty producing a consistently high level of earning.

- While Aer Lingus has long operated in a very competitive business environment, the airline has demonstrated an ability to maintain a strong market position and record healthy result.

- The Board of Aer Lingus recommends to Government that the company be mandated to proceed with such a major operational strategic alliance, subject to satisfactory due diligence, documentation and regulatory approval.

- The aviation industry as a whole has continued to grow, with increased prosperity and international business stimulating demand for air transport, in both the full service and no frills sectors.

- Aer Lingus also became a full member of the oneworld global airline alliance with customer benefits. Agreements between oneworld member airlines enable customers to benefit from better access to global route networks improved customer support services, closer linking of member airlines.

- The airline and its administrative organization is wholly owned by the Irish government, which will give any outside interest, be it domestic or foreign, a considerable amount of difficulty in trying to gain involvement in the company.

- Should the private sector gain a role in the non-airline activities of Aer Lingus, it may face the situation of high regulations should it be a foreign entity, especially if the government is being lobbied by nationalists or is part of a coalition government which includes a party seeking a review of all potential foreign investments.

Social and Cultural

- Aer Lingus, being seen as a national airline, albeit one particularly identified with a nation, is generally unlikely to change its overall atmosphere, even in the event of a restructuring to allow for a potential foreign interest.

- As ATS (Automation Tooling Systems) is a Canadian firm, the company needs to do comprehensive research into Irish business practices before it enters a joint venture with Aer Lingus.

- Since Ireland has been (and still is) trying to attract foreign investors, Aer Lingus will require a greater promotion and upgrade of its business class service, especially for overseas markets and customers. The airline itself, however, must not and cannot afford to neglect its basic service priorities, namely the maintenance of standard passenger classes such as economy, and first, second, etc. Since the general Irish public is more likely to use such services than anything to a premium above what they are accustomed to.

- Aer Lingus is seeking an interest in ATS, and vice-versa. As an airline requires technological improvements to its operations, such an inclusion could benefit the company in a positive manner.

- With the company’s non-airline sector to be influenced by a company with expertise in an element of that sector, the company can gain expertise in that area for any future operations, especially if there is a shakeup in the company administration later on.

- ATS creates sophisticated products, but if needed, they can create more standard products.

- ATS has a slow manufacturing process not so much because it takes a long time to create the products, but rather because the products need to be tested and fine-tuned.

- Companies that purchase ATS products require ATS to support them with software upgrades and hardware repair/tuning.

- Northern Telecom decreased its order of ATS products because it was unsure of ATS’s future and did not want to depend too heavily for upgrades and repairs just in case they went out of business.

- ATS could become one of the top three sellers of its product over the next few years if it can reach it’s full potential.

- ATS provides products that can be used in many industries, for example, they sell primarily to Northern Telecom - mainly a telecommunications company and they were almost taken over by Berton Industries an automotive company.

- As the government of Ireland directly owns the airline, overall economic conditions will be directly felt by the company to a greater degree than it would as a part of the private sector.

- An example of how economic events would influence the performance of the company is cited with the economic cycles as mentioned in the text. As situations improve or worsen, the funding from the government will either increase or decrease according to the situation, and amounts in the change will vary according to how severe the situations may be.

- Since the Irish currency, the Punt (Pound) is worth a lesser amount in comparison to the Canadian dollar at the time of the purchase, there is the potential to make a major return on any investment made over a period of time, exemplified by the GPA (Guiness Peat Aviation) example in which as £ 20 million profit was made from an original investment of £ 2.2 million.

- With a credible high return on investment as demonstrated with GPA, it should be easy to attract new, major high-profile members into a partnership for an investment scenario, as such a success will perhaps reduce any potential skepticism as whether the allocation of a company’s resources towards a new venture would be a considerable risk.

SWOT

Internal Company Analysis

Strengths

- ATS was not too expensive; thus it was poised for acquisition by a big corporation looking for a growth opportunity.

- The head of ATS was very knowledgeable in the core business of the company- this made him more akin to the technical ramifications of the company- he would therefore be a source of inspiration to his managers.

- The ATS personnel under the guidance of Klaus Woerner seemed to have found a winning formula to turn the company around by concentrating on systems application, which was by then showing signs of positive growths. This meant that ATS could benefit from this trend.

- ATS had a good contract with Northern Telecom, which would certainly give them some well-needed visibility in their industry both nationally, and internationally.

- Industry insiders thought that ATS was poised to be one of the number one players in the Robotics field if it could realize its full potential. This showed a certain level of respectability accorded to the company by their peers. Such an endorsement would certainly give ATS the encouragement it needed to pursue more competitive strategies.

- Although it was a small company, ATS had managed to progressively improve its financial statement since 1980, which means that its management policies were working. ATS had an apparent advantage with the companies it did business with by controlling maintenance and software updates.

- There are detailed negotiation notes on record to ensure a smooth purchase.

- Both sides have discussed their points of view and are ensuring that what they want is what they are getting.

- Buyers have made an informed and profitable decision.

- Strategically this is an excellent move by expanding the technological side of Air Lingus to ensure future survival.

- ATS is on the cutting edge of technology.

- ATS produces innovative products that complement Aer Lingus’ current product and service line.

- Aer Lingus’ decision to buy now ensures a low cost and keeps competition away.

- By keeping the management of ATS for the minimum period Aer Lingus will deal with proven management with increased benefits from existing Aer Lingus members.

- There is a good customer base on the part of ATS and the partnership as such will complement this.

Weaknesses

- The most obvious problem that ATS had was a shortage of cash flow. The company couldn’t properly finance expansions, or invest in research and development.

- The company needed a new facility in order to expand operation- with the present plant the production capacity was limited.

- ATS did not seem to have a very good business strategy-Klaus Woerner knew he needed to grow his company, but was not sure about the direction to take.

- The company needed to have a broader customer base. Having one customer that represents 40% of its business was somewhat limiting and risky. If that company had any type of slowdown it would directly affect ATS’s operations.

- ATS seemed to need a better financial structure; perhaps a VP of finance would give the company some needed financial power.

- There is no precise direction as to where Aer Lingus wants to take ATS.

- ATS is using crowded and quite possibly obsolete facilities that require more capital (i.e. further investment).

- Management at ATS is knowledgeable but fails to document and for see the future realistically for extended periods.

- ATS management lacks the know-how to predict trends and complete standard business procedures (i.e. forecasting).

- The market for ATS services is gradually weakening as seen by the decline of demand from Northern Telecom (drop from 40% to 33%).

- ATS owners seem skeptical and confused, placing additional strain and time on negotiations

- Insufficient funds present in ATS to continue at its current growth rate.

- Additional funds required for building, bonuses, and industrial expansion.

External Environmental Analysis

Opportunities

- ATS opens several opportunities for Aer Lingus and expands a relatively small customer base.

- ATS provides the ability for Aer Lingus to return profits on a less cyclical manner and create a more stable base for earnings.

- Expansion into the new fields will increase the product line and increase the customer base significantly.

- ATS’ services work in cohesion with Aer Lingus in similar fields, which enhance the activities and developments of both companies.

- ATS is experiencing significant growth and will continue to for several years, making the investment at the best price now.

Threats

- Aer Lingus is about to delve into a new field with insufficient experience making it very easy for competitors to ‘wipe them out.’

- All firms in this field are having an increase in growth, which means there will be competition for larger clients.

- There is a very high likelihood of new competitors introducing substitute products and at varied prices.

- ATS is different than Aer Lingus in terms of demand, in that ATS is based on growing economy and increased production and is affected by the business cycles.

- Possibility for changes in customer needs and tastes that will in turn affect demand.

Strategic Management: Text, Readings and Cases, Fifth Edition. Paul W. Beamish & C. Patrick Woodcock, McGraw-Hill Ryerson Limited, Toronto 1999. Section III – Cases – Case 1 Aer Lingus – ATS (A) p. 291-302

FOCUS ON AER LINGUS:

A Strategic Management Case Study

ENVIRONMENTAL SCAN

Stakeholders

Social and Cultural

Since Aer Lingus is Ireland’s major national airline, it is assumed that its operations as a passenger airline are like any other in the world, offering the usual levels of service, i.e. (First Class, Business, Economy), with changes to each level made in accordance to usage or popularity.

While not as major an airline as several other international airlines, flight destinations are not as likely to be as numerous.

ATS primarily serves business customers, such as Northern Telecom, for their income, unlike Aer Lingus, whose primary business and most secondary businesses serve the general public.

The robotics industry was said to be in a stage of growth in North America during the 1980s.

The airline industry was facing many problems in the early 1980s and sales were much lower than previous years because of this.

Due to the geographical distance between the two companies, communication mostly takes place via phone or occasional meetings, modern business tools such as email and net meeting software, were not available.

Due to the geographical distance between the companies, structural changes to the parent company, Aer Lingus, may not affect the self-managed business. The self-managed business would likely have more independence over its operations because of the distance between the two.