Tag Archives: Dubai

BAA Humbug – The short- and long-term effects of greed and ineptitude

BAA staff work feverishly to clear the snow at Heathrow

Image via yfrog: BAA staff work feverishly to clear the snow at Heathrow

I’m going to try not to make this too much of a rant, but I’m both extremely disappointed and annoyed – not for me personally (thankfully I wasn’t directly affected), but for the thousands of people who’ve had their holiday plans, reunions and Christmas spoilt through a combination of woeful ineptitude and greed.

And, I think, there’s a real danger of this ineptitude and greed having long-term effects that are several orders of magnitude more serious for the country as a whole.

I’m talking here, for those of you who’ve not yet guessed, about BAA and Heathrow.

How can a company entrusted with managing the world’s busiest international airport be so unprepared for winter? It’s certainly not through lack of money – BAA is on track for an operating income of nearly £1 billion this year, and yet their total expenditure on preparing for snow and winter conditions this year was just £500 000…  (an amount the board has just allowed to be increased to £10 million – still only 1% of their operating profit!). In my view this is a typical case of short-term profit focus, at the expense of long-term sustainability (see my post: The Perils of Quarteritis).

It’s not as if they didn’t have warning. The first cold snap hit at the end of November and there were already warnings that heavy snow and icy conditions could be expected for the rest of the year. Granted, by then it was probably too late to have been able to source much new equipment in time (although they should have learned a lesson from January & February), but they put no contingency plans in place at all.

What about a deal with farmers nearby to use their tractors and grading equipment in an emergency? What about stockpiling grit, salt, glycol, etc.? Then they compounded things by turning down offers of help to clear the runways and taxiways from the military.

And, on top of this, they apparently gave out poor information to airlines such as BA which could have operated more flights than they did, and so reduce the backlog somewhat.

So, this corporate greed and ineptitude directly ruined the holidays for thousands of people, apart from costing hard-pressed airlines a good deal of money (can they sue BAA?)…

But the long-term effects could be even more serious. With some 30 million people a year visiting Britain, annual tourism expenditure of some £90 billion and almost 8% of jobs supported by tourism, this is a vital sector of the economy. However, the unreliability of British airports – especially one as important as Heathrow – is bound to make travellers think twice about using Britain as a stopover point, or even as a destination.

And airports in the Middle East such as Dubai and Qatar are eager to take these passengers. For example, Dubai is already the 4th busiest international airport in the world, with huge expansion already underway, and one of the youngest fleets in the world (and a flexible one, as Emirates was apparently able to put on 3 extra flights a day to clear their backlog once Heathrow reopened).

The impact of a diversion of disgruntled passengers from Heathrow to Dubai, for example, would have an enormous impact on Britain and on the struggling BA.

BAA needs to wake up, stop being so greedy and to accept proper responsibility for its role in running strategically important airports – or it needs to be replaced by a company that will do so, and quickly.

What do you think – should the company, its leadership, or both be replaced?

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Cash Flow or Bust!

Notice of closure attached to the door of a co...
Image via Wikipedia

The recent furore over large companies asking to reschedule debt repayments has once again highlighted the issue of cash flow, and how important it is to even the largest businesses.

The companies are not really bankrupt – in one recent example, a company with debts of an estimated $60 Billion has these amply covered by an asset portfolio which, even in these depressed times, is reckoned to be worth around $100 Billion. Why, then, is it trying to put back the payment of some $3.5 Billion due this month?

The simple answer is that it doesn’t have the free cash available… Business plans were built on an expectation of a certain level of trading – primarily in property sales – which simply dried up with the global economic crisis. Without the sales, the company quickly found itself running short of cash and so unable to service upcoming debt repayments. Unlike governments around the world, of course, a company can’t simply print more money to get it out of a hole (an unwise move for governments that seldom seems to stop them, though!). In the absence of being able to improve its sales to generate cash, it must either borrow more money to repay old debts, or delay the repayment of those debts. And this is what the company in question is now trying to do.

The fact is that many more businesses fail through cash flow problems than for all other reasons combined – an estimated 80% of failures, in fact!

So how do companies get out of looming cash-flow crises?

The answers, of course, vary enormously with the type of business, but a few general items cover the vast majority of situations:

  • Boost sales – this is the most common response, and can be helpful. However one needs to ensure that it is not a case of delaying the inevitable: that sales are not done at such low [special] margins that the business cannot cover even basic costs. Reducing profitability for a short period to get extra sales can help cash flow, but reducing it to a point of significant loss is potential suicide.
  • Manage Inventory– this is a more complicated area and one not fully appreciated by many businesses. One needs to not only reduce inventories to a level appropriate to the business and lead times, but also to manage the ordering process to stop islands of excess building up (look at weekly sales, instead of monthly, and you’d be surprised how the picture can change, for example).  Reducing inventory by 3-4 days is like putting an extra 1% on the bottom line, and lower stock means lower payments which helps your cash flow, so systems should be in place to ensure stock doesn’t age, and that ordering is appropriate to the business run rate.
  • Reduce Receivables – another potentially complex area that is often neglected in the interests of “keeping customers happy.” If you are known as a soft touch, then your customers will stretch your payment terms to pay those that are more demanding (or financially beneficial). Instead of sending a month-end statement and hoping the money will roll in, send it at the beginning of the month and have credit controllers call your customers before mid-month (when they’re quiet anyway) to ask about any possible queries on the statement. Simply removing these queries proactively will reduce your DSO noticeably in most cases. Of course, there are many other techniques, too.
  • Reassign Assets – although this might not help a short-term cash flow issue, managing your assets properly can help prevent cash flow problems. Do you really need to own your Head Office, or is it an ego thing? Do your vehicles, or IT systems, need to be owned or can you lease them? In many cases you’ll find that the benefits of leasing or renting are significant in terms of cash flow and they have tax benefits, too.

All of these issues can play a significant role in helping you manage cash flow better, and there are more, besides, depending on the nature of your business.

The real point, though, is to run your business in such a way as to avoid getting into this sort of trouble in the first place – cash flow problems can literally put even the most profitable company out of business.

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