Asset Management Case Sstudy
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The document examines British Aerospace's approach to asset management during challenging economic conditions, highlighting their shift from a stable sales model to leasing amid airline privatization. Facing a crisis due to high liabilities from returned leased aircraft after the Gulf War, the company created British Aerospace Asset Management to optimize asset utilization and increase growth potential. Their innovative strategies included improving lease rates and efficiently managing existing assets, which ultimately led to a successful turnaround.
Asset Management Case Sstudy
- 1. www.welingkaronline.org Taking wings again: A study of British Aerospace Asset Management An organization has to meticulously and intelligently go through their finances and transactions so as to get the most out of their capital. Managing assets is one aspect that is very relevant to any organization. Let’s take a closer look at how British Aerospace dealt with Asset Management in rough weather. Background British Aerospace is a world leader in aerospace and defence, and it currently operates as BAE Systems. The company deals with the design, development, manufacture and testing of civil and military aircraft, guided weapon systems, artillery and ammunition, along with other high technology system and equipment. The annual sale of the company surpasses £8 billion and an order book of more than £22 billion. It ranks among the world's largest defence contractors and is one of the major suppliers for the US Department of Defense. British Aerospace Asset Management was responsible for the management, sales and leasing of a worldwide portfolio of over 400 regional jet and turboprop airliners. What is Asset Management? In simple words, Asset Management is the process of managing assets to make them work to obtain the best possible returns. In other words, it is making the best use of an organisation’s assets in order to maximise shareholder value and to provide the best possible returns to other shareholders in the organization. Taking the case of British Aerospace, an example for their assets would be their fleet of planes that they could lease out. This case study of Asset Management will highlight the principles involved in Asset Management and examines how British Aerospace managed its portfolio of aircraft in order to get the best possible returns from them.
- 2. www.welingkaronline.org The Challenge Aircraft manufacturers had a relatively stable environment to operate in all through the 1950s and 60s. As airlines were mostly government owned, they used to buy planes outright that left little financial responsibility with the producers of the aircrafts. A change came about in the 1980s when airlines were subjected to a process of privatisation and many new airlines entered the market. They did not want expensive assets such as aircrafts on their books and they wanted the flexibility to expand. They started preferring to lease aircrafts, rather than buying them. Aircrafts were bought by the leasing companies and leased out to the airlines. But for the arrangement to work, aircraft manufacturers like British Aerospace had to guarantee the lease payments. British Aerospace would continue making payments if a company went belly up, and this is where the problem started. The Gulf War of 1922 resulted in economically difficult times and lead to many airlines folding up, leaving British Aerospace in a difficult position. They were unable to sell the aircrafts they produced and moreover they had a large number of leased aircraft returned to them. British Aerospace was facing a crisis as large amounts of capital were standing still in hangars. The potential liabilities resulting from its obligations to leasing companies were staggering, and their share price collapsed to 98p at one point. The Solution Drastic, dramatic and urgent steps were needed to be taken by British Aerospace. They did that by cutting the production rate for new aircraft, shutting down the Company’s Hatfield factory and creating a new company which became British Aerospace Asset Management. The purpose of the new company was to manage existing assets effectively in order to maximise growth potential. The new business followed the philosophy of a small business with a flat structure and small teams. The work was done autonomously with a clear business plan and there were three steps defined to bail out British Aerospace. To get the inactive fleet back into service. Increase the lease rates. Disposing off assets.
- 3. www.welingkaronline.org By using the innovative policy of leasing and selling aircraft, British Aerospace Asset Management successfully overcame British Aerospace’s asset difficulties. Intelligently and creatively thinking about asset management helped British Aerospace handle a very serious liability for the company. Residing at the heart of all modern business organizations is an excellent asset management team, and British Aerospace embodied this with their successful turnaround of an ailing business.