Issues & trendsWithin the Aviation & Transport services industry |
- Processing insurance claims
Although the dust has now settled following the Iceland volcano back in April 2010, many parts of the industry are still counting the cost of its impact and furthermore having to deal with a significant volume of dubious claims. Deloitte is able to assist in processing such claims and also with assessing what might be considered a reasonable cost for accommodation. - Mergers, acquisitions and disposals
Whilst most other industries have shown an abrupt halt to the number of mergers and acquisitions taking place, the desperate need for most airlines to reduce their cost base and achieve synergies with competitor airlines continues unabated. With the next phase of the Open Skies agreement scheduled for 2010, the opportunity for EU and US airlines to acquire each other may finally be allowed. Many businesses are also revising their strategies to focus on their core business and therefore dispose of their peripheral businesses, such as frequent flier programmes, engineering departments and ground handling capabilities. Deloitte are already engaged with a number of airlines to assist them in their proposed transactions – click here to find out more about our Corporate Finance team - and have experience of post integration management through a number of high profile mergers in the sector in recent years. - Landing slot valuations
For many airlines landing slots are one of their most significant assets. However, the market in airport landing slots is still maturing and valuation is a complex and sometimes controversial subject. It requires an in-depth understanding of the relevant market and the asset, together with financial and non-financial information. - Hedging strategy
To hedge or not to hedge, that is the question. Both fuel prices and currencies have fluctuated wildly as a result of the turmoil in global markets and, with cost management becoming increasingly important to airlines in terms of managing their cost base, effective hedging enables management to plan ahead.
Deloitte have advised a number of airlines on their hedging arrangements and our tax team have a range of schemes that can improve a business’ pre-tax profit through effective foreign exchange management. - Cost reduction
The aviation sector, now that it is seeing a decline in revenues, especially as people are largely not choosing to fly at the front of the aircraft, needs to focus on cost reduction methodologies and related solutions. To this end Deloitte has identified a new product line which encompasses a powerful analytical tool for critically analysing an airline’s cost base and related working practices. This analytical tool is able to look at the efficiency of fuel burn by aircraft/ aircraft weight characteristics/ pilot practices at airports, pilot and crew rostering, the impact of minimising taxiing and delays in landing and taking off etc to assist management in focusing their attention where real costs can be saved. Staff costs are another area where Deloitte can assist businesses to make savings, such as salary sacrifices and SMART pensions, whilst Deloitte Consulting are able to assist in more fundamental reviews of staffing and ways to reduce the cost burden. - Regulatory and banking issues/Distress
High profile failures such as silverjet, Zoom and XL have demonstrated how susceptible airlines can be to significant downturns in business coupled with rapidly rising costs. With insurers and banks alike both facing their own difficulties in view of the credit crunch, the cost of compliance (e.g. insurance for a CAA bond) or the demands made by banks to provide facilities (e.g. cash advanced in respect of deferred income) are both likely to become more onerous. Deloitte’s Reorganisation Services team will be able to help should your business be facing these difficulties. - Aviation emissions and fleet strategy
Aviation emissions are damaging to the environment, and the sector will be a growing contributor to global warming over the coming years. It is also clear that despite the fact that aviation is not the industry with anything like the worst record on emissions it is still being labelled by regulators and governments as a major contributor to the world’s problems in this area. Following the International Civil Aviation Organization (ICAO)'s endorsement of global aviation emissions trading in principle earlier this year, the European Commission announced on 24 October that the aviation sector is to be included in its Emissions Trading Scheme, adding another burden to EU based airlines. As such, fleet strategy, especially the investment in fuel efficient aircraft, will be ever more important to airlines not just in terms of enhancing their green credentials but also delivering a direct improvement to their bottom line. Our paper, Aviation emissions trading: potential impacts and policy options discusses some of the key issues still to be finalised and their possible impacts. - Aircraft maintenance
From our continued review of airline financial reporting we continue to see inconsistencies in accounting for maintenance and in some cases incorrect accounting in terms of compliance with recognised accounting practices. Deloitte is a leader in this area of financial reporting and has recently written a maintenance accounting manual for airline companies which will enable such entities to comply with IFRS as well as UK GAAP. We have also identified a number of areas where savings can be made in airline working practices as well as identifying better ways of communicating, especially between airline engineering and finance departments.