AirTex Aviation

 It is one of 8 fixed-base operations at San Miguel airport

 It served Center County, Texas - one of the most rapidly growing communities in the
nation
 The company conducted activities through 6 informal departments
1. Fuel Line -- Will Leonard
2. Service and Parts -- Carl Green
3. Flight Training -- Roy Douglas
4. Avionics -- Leon Praxis
5. Aircraft Sales -- Bill Dickerson (discontinued)
6. Accounting -- Sarah Arthur

AirTex Aviation Case Study

 The Problems
 AirTex had a loss of $500,000 on sales of $10 million in fiscal year 1989
 It left the company with a negative net worth

$500,000 $515,000 $510,000

Ted and Frank The total that AirTex Total checks that are
contribution will have in the bank most important be paid

 3 days before the closing, Frank confessed to Ted that he had made a structural error
in the projections. He was computing accounts payable on the wrong basis, and
they're going to run out of money in 3 months.

AirTex Aviation Case Study

 The Purchase Background
1988
Ted Richards took a job in the corporate
finance department of a large electronics
company in Los Angeles

1986
Frank Edwards went to the Los Angeles
branch of a well-respected consulting firm

Ted and Frank want to going into

business together

Ted Richards Frank Edwards

AirTex Aviation Case Study

 The Purchase Background
During 1988 - early fall of 1989
 Ted and Frank really wanted to find a “fixer-upper” - they wanted to purchase and
“turn around” a failing business that showed a lot of potential
 Some criteria that they have established in business school fashion
1. The company couldn’t cost much
2. The company had to need what they offer
3. The industry had to be fragmented and non-oligopolistic
4. The company grow at a rate of 20% per year in the first five year-period
 They located a fixed-base operation at San Miguel Airport in Texas that was losing
money and looking for a buyer
During 4 months of negotiation
 Frank did the financial projections and Ted designed the accounting system
After 4 months of negotiation, on December 29, 1989, they purchased the stock
of the AirTex Aviation for $100,000
 The lease on the facilities had a purchase option at a price considerably less than
the market value
 By exercising the option and then selling and leasing back the building, they were
able to raise the $500,000 for working capital
AirTex Aviation Case Study
 Organizational Structure
 Decentralization - by making each operating activity a profit center and grouping
them by departments
 Each departmental manager would be given authority, including granting of credit,
purchasing to a predetermined limit, setting policies, and collecting receivables
 They also will be responsible for its results

Frank's concerns

 Whether it is the right time to do the decentralization

 He doesn't know if the departmental managers can be taught some of these
management techniques fast enough - some of them have never finished high school
 He consider to have a decision making by themselves for a month or two
 They have formal management skills, even neither of them has been a line manager
in the aviation business before, but they can learn faster

AirTex Aviation Case Study

 Fuel Line Activity
 It was open 18 hours a day, 7 days a week, year-round
 It employed 12 unskilled fueling people, with and average tenure with the
company of 8 months, and 3 dispatchers who coordinated their activities
via two-way radio
 Managed by Will Leonard (mid 30s), formerly he became the construction
foreman for Bill Dickerson when Bill was a real estate developer
 When Bill bought AirTex in 1980, he brought Will to manage the “line crew”
 Will was enthusiastic about his job, extremely loyal to Dickerson, well-liked
by his employees, and a good first line manager
 Will had a high school diploma and some junior college credits but lack in
any theory of management
 The fuel activity encompassed five operations:
1.Retail Fueling
2.Wholesale Fueling
3.Fuel Hauling
4.Rental Cars
5.Tie-Downs
AirTex Aviation Case Study
 Service and Parts
 The service activity repaired, maintained, and overhauled aircraft, while
The parts activity, a separate accounting entity
 The service employed 6 mechanics and a departmental secretary, for The
parts employed one person and was managed by the head of service, as
sales went almost entirely to the service activity
 Managed by Carl Green (mid 60s). Ted says he's not a self-starter, had a bit
of retirement mentality, and avoided conflict except when it came to quality
 Carl had a high school diploma, aircraft and power plant licenses, and multi-
engine and commercial pilot certificates. He knew airplanes, engines, and
aircraft mechanics
 He was the mechanic/copilot for a Dallas oil executive and become chief
mechanic for Dove Aircraft at Love Field in Dallas prior to moving to AirTex

AirTex Aviation Case Study

 Flight Training
 The activity was managed by Roy Douglas
 Roy had held several world record in aviation’s and was highly respected by the
aviation community. His pilot license was signed by one of the Wright Brothers
 He hired 7 instructor pilots and 3 dispatchers, gave check rides to students prior to
their FAA flight exam, and set safety policies
 He and his chief dispatcher, who had been for over 10 years with him, were loyal to
both both AirTex Aviation and the flying community. They had seen everything and
surprised by nothing, they were very resistant to change, be it new aircraft
technology, aviation teaching methodology, or accounting systems
 The flight training activity had two types of operations
1. Flight school
2. Pilot Shop

AirTex Aviation Case Study

 Avionics
 A single-person activity conducted by Leon Praxis
 Leon was a college-trained electronics technician
 Responsibility: repairing radios and electronic
navigational equipment
 Working hour: 8am – 5pm

AirTex Aviation Case Study