Lessons for Struggling Businesses from American Airlines


Labor strife, high expenses, bankruptcy, a merger and a comeback



With big profits and American Airlines becoming the third airline to be included in the S&P 500, it caps a comeback for the vaunted company.

In a sense, a legendary iconic American company had bitten the dust.

In a bid for sustainability, the American Airlines (AA) $11 billion merger with US Airways made it the world’s largest carrier.

It’s been a stormy flight for AA.

AA filed bankruptcy Nov. 29, 2011, just five months or so after ordering 460 single-aisle jets from Boeing and Airbus. Meantime, US Airways ordered 76 new Airbus jets.

The merger is forecast to produce revenue and savings of more than $1 billion by 2015. The deal involved more than 900 routes, but only 12 of them overlap.

AA merger downsides

AA has a long history of labor troubles and the merger presents quandaries in combining two union workforces totaling 96,000 people, as well as blending two information-technology systems and aircraft.

Historically, such mergers aren’t successful. Consider that United’s poor on-time performance continued even after it merged with Continental Airlines.

The problem extends to other industries. Look at Hewlett-Packard’s problems after its CEO, Carly Fiorina, forced a merger with Compaq.

America isn’t the only country with failed mergers. Mergers in Canada have an 80 percent failure rate.

Before merging, my sense is that none of the airlines took the precaution of consulting experts in human resources

But, the bankruptcy filing by AA’s parent company, AMR Corp., was an example of proper business planning to alleviate uncertainty. All struggling businesses and individuals might study AA’s plight to see if it’s applicable.

At the filing, investors were fleeing – the company’s stock was barely above water at 32 cents per share. The company lost $471 million in 2010 on top of $1.5 billion in 2009 and $2.1 billion in 2008. That’s an indication that the company probably exhausted all options before its court filing – an honorable approach.

Propriety of Chapter 11

Chapter 11 filing helped the company to manage risk for stakeholders – passengers, vendors, shareholders and employees. It’s the proper flight plan to restructure debt and expenses.

When AA filed for Chapter 11, it flew a notable 9 million passengers that month. At the time, it had 88,000 employees to service a complex route system. So, the company is an important part of the nation’s and global economies.

From the perspective of the Federal Aviation Administration, a flight plan is required for safety. A plane must have enough fuel to reach its destination. It must meet air traffic control requirements for routing and attaining the right height and speed to avert a collision with another aircraft.

A properly handled bankruptcy serves the same purpose. Under federal protection, AA was able to continue to operate to serve passengers well on its 3,300 daily flights.

The bankruptcy filing meant the company was required to be more strategic – to come up with management strategies for a successful turnaround.

Fuel prices have dropped big time resulting in cost savings. Like the rest of the airline industry, AA had been coping with an uncertain economy, heavy competition, and explosive prices for fuel. The latter is a problem Alaska Airlines strategically solved in a Northwest partnership to counter high jet fuel costs.

Pivotal key – human resources

Like most airlines, AA was challenged in passenger service. Airline travel was once a special event for passengers. But no longer with a perception of uncaring service, lost baggage and flight delays on many airlines.

The new AA will need motivated employees – to provide exemplary service with beguiling charm – like it did five decades ago when I took my first airline flight. Let’s hope the 96,000 merged workers get the message.

Poor customer service and internal operations are responsible for at least 50 percent of a company’s profits or problems. Employees can be part of the solutions or problems.

That includes hope the venerable airline comes up with a strategic plan to succeed. Stakeholders deserve a sound plan.

FYI, if you’re struggling, too, there’s no stigma in bankruptcy for an honorable company. It’s best to take a sober look at your situation, and take appropriate action no matter how challenging.

From the Coach’s Corner, however, before jumping into bankruptcy, first consider these options:

Step-by-Step Solutions for a Company Turnaround — Difficult economic conditions have exacerbated the financial woes facing many businesses. But business success is possible for companies suffering through red ink. Here are financial solutions that will help facilitate a company turnaround.

12 Tips for Profits to Keep Your Business Dreams Alive — Most businesspeople agree the economy continues to be challenging. Signs of a lingering downturn are everywhere. Business activity is slow. Governments at all levels report low tax revenue and are restructuring, and not spending. So what can you do?

Do You Know What Drives Your Profit? (There Are 4 Drivers) — For profits, entrepreneurs must learn how to manage their financials and performance, which are difficult tasks. Savvy business owners know who their ideal clients or customers are. Entrepreneurs realize financial benefits when their revenue from business exceeds their expenses and taxes. This results in a much easier task – deciding whether to save, spend or invest the profit back into the business. So, it’s imperative to know what drives profit.

Accounting / Finance – Why and How to Determine Your Break-Even Point — Uncertainty can kill hope in business. Best practices in management mean having the right information to alleviate uncertainty in business. For that you need the right tools. One important tool – know your break-even point (BEP). A BEP analysis should be an integral part of your financial planning.

Strategies if Your Accounts Receivables Are a Problem — Increasingly, receivables are continuing to haunt businesses as their customers struggle in the much-awaited recovery. Here are some solutions.

Better to be slapped with the truth than kissed with a lie.


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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.






Step-by-Step Solutions for a Financial Turnaround



If you’re struggling like many businesses, you know the myriad of entrepreneurial challenges. However, despite the challenges, it is possible for businesses to successfully complete a financial turnaround.

First, you might have to put on a different set of glasses – see this economy as a marvelous opportunity.

ID-100258930 jscreationzsBut it’s not just a matter of increasing sales. There’s more to it.

Sometimes, I get inspiration from non-businesspeople like the most revered president in American history, Abraham Lincoln: “If I only had an hour to chop down a tree, I would spend the first 45 minutes sharpening my axe.”

To sharpen your axe, there are salient areas that need your focus in order to turn your business around, which include financial, marketing, and internal operations.

For space limitations in this column, let’s deal with finances.

Businesspeople are embarrassed by having to face the trauma of continuous collection calls.

They often don’t communicate effectively with creditors on managing cash flow issues. So tell creditors you’re working to correct the situation.

Cash flow

The first objective is to manage cash flow in three steps:

1. Increase the cash balance. Collect the outstanding accounts receivable and generate cash from any saleable assets.

2. Prioritize the cash disbursements. Focus the available cash toward the must-pay expenses first, including payroll and associated payroll taxes, and pay other vendors with your remaining balance.

3. Develop a cash forecast. Project realistic cash receipts by customer (preferably include the products or product lines) and disbursements by creditor on a weekly basis for the three months – and monthly thereafter for a year. This means reducing the revenue and collections in your projection by 10 to 30 percent to make certain the actual results are achievable and you do not run out of cash. Develop and implement plans to operate and keep you in business at the lower projections.

… you might have to put on a different set of glasses – see this economy as a marvelous opportunity.

Denial

Denial is usually the biggest consequence: Acknowledge your situation, develop a turnaround plan, and communicate with your bank, with vendors, and your employees.

Once you acknowledge the situation, consider your company’s mission statement, define the core business, including your target customers, and your company’s unique competencies in the marketplace. The bottom-line question – are your products or services responsive to the market demand?

Next, determine your company’s strengths, weaknesses, opportunities and threats with a SWOT analysis.

Negotiations

If you owe money to banks or vendors, most would rather be repaid over time than take over your business or force your company into bankruptcy, provided you can show them how they will benefit by working with you.

For your lenders, provide your operational and financial turnaround plan exhibiting the company’s viability and outlining a repayment plan and timetable for the bank and explain how you intend to protect the bank’s collateral. You may have to show your lender how they will receive less money if they force you to liquidate to repay your line of credit if they don’t extend the repayment terms of your loan.

In dealing material suppliers, offer to pay them cash on delivery on future shipments so that they can continue to earn their gross margin on your purchases and suggest that you will also pay a small percentage toward their prior outstanding balance. Your vendor will keep you as a profitable customer and their outstanding receivables will be reduced over time.

Keep your commitments on making payments to re-establish credibility.

Identify your company’s key performance indicators, or critical success factors.

Key performance indicators

Continue to monitor your company’s financial health. Identify your company’s key performance indicators, or critical success factors. These indicators must be SMART, an acronym for specific, measurable, achievable, relevant and track-able. They typically relate to sales to key customers, accounts receivable collections, cash balance, raw material deliveries, and sales backlog.

A flash report can be designed to monitor these indicators on a daily basis and to evaluate your actual performance against the turnaround plan. It should be shared with key players in your company so everyone understands and has a sense of ownership so that you have a team-approach in achieving your goals.

As for your receivables, here are resource links: Are Accounts Receivables a Problem? and How to Ease Debt-Collection Headaches.

The textbook I use in teaching finance to non-accountants is “Finance for Non-Financial Managers” by Gene Siciliano.

Use these tips and you’ll increase your odds for a good return on your marketing investments.

From the Coach’s Corner, here’s a quick tip on sharpening your axe for repeat business:

Use the Golden Rule. How many times have you said you’re tired of spending money at companies who have employees who take your money and say “Have a nice day,” but fail to smile and say “Thank you”?

Or they seem indifferent toward you? My research shows that consumers stop buying from a business about 70 percent of the time because they feel they feel taken for granted. Customers will go elsewhere and not bother to complain about the lack of respect. Incidentally, employees are consistent. If they are indifferent to customers, they treat their fellow workers the same way.

So if you have customer-service employees and your profits are down, you can bet your company needs to improve team morale and customer empathy.

Additional resource links:

You Can Creatively Manage Your Cash Flow 7 Ways — If you’re taking the pulse of your business, of course, the first thing to consider is your cash flow. If your cash flow is poor, you feel poor because you can’t pay the bills nor can you use money for what you’d like to do. Your image can also suffer with vendors or with customers, if you don’t manage your cash flow.

Accounting / Finance – Why and How to Determine Your Break-Even Point — Uncertainty can kill hope in business. Best practices in management mean having the right information to alleviate uncertainty in business. For that you need the right tools. One important tool – know your break-even point (BEP). A BEP analysis should be an integral part of your financial planning.

To Cope with Rising Costs, Review your Pricing Strategy — Increased costs weigh heavily on the bottom line. If you’re being pressured by costs, it’s probably time to review your pricing strategy.  You’re not alone. No business is immune from rising costs in fuel; rent or real estate; labor; health insurance and ObamaCare; marketing; and equipment. Lest not you forget all the taxes.

15 HR Strategies to Improve Your Business Performance — Studies show many employees are dissatisfied in their workplaces. Employee dissatisfaction, of course, will adversely affect a company’s performance.

Secrets in Motivating Employees to Offer Profitable Ideas — Savvy employers know how to profit from their human capital. Such knowledge is a powerful weapon for high performance in a competitive marketplace. Furthermore, there’s a correlation among excellent sales, happy customers, and high employee morale.

 You can’t do today’s job with yesterday’s methods and be in business tomorrow.


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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.





Image courtesy of jscreationzs at www.freedigitalphotos.net


Seattle business consultant Terry Corbell provides high-performance management services and strategies.