finance case study

Gabriel: "But we can't take another hit to the return on sales on this deal. As the deal stands, we had to go to Group Level for approval on this one. This isn't good. I'll speak with the finance people and call you back within 24 hours."

Avicular Controls C) Avicular Controls, Inc. (ACI}, based in Chicago, had dominated the field of automatic controls since its founding in 1903. Beginning with furnace controls for the steel and power industries in 1903, it continued to grow for over 90 years. By 1996, Avicular employed 13,000 people and conducted business in 52·countries. A�.was coibposed of two major business units: Industrial Process Controls (AvIPC, 1996 sales of$1.75 bil­ lion), and Aviation Control (AvAC, 1996 sales of$1.21 billion}. In thelurnmerof1997 ACI was positioned co achieve its sales growth goal of $4 billion by the year 2000.

AvAC was once again on a growth path after·several tough years. Avicular 0"" \ was recognize� as the dominant force in the avionics market; market share had grown to a hefty 53% by 1996. But the industry had suffered a severe downtur�djLP beginning in 1992, and was only now reaching the sales levels achieved last in 1991. · LJ , In fact, AvAC sales had been $1.6 billion in 1991, and would hopefully once again break the $1.5 billion line in 1997. The commercial aircraft industry returned to a healthy growth path in 1996 and early 1997, and growth was expected to stay robust through the year 2000.

ACI, specifically the Air Transport Systems division of the Space and Aviation Control business unit had recorded a number of major wins in 1996. These wins included the contract for the cockpit retrofits for a major overnight package delivery firm's fleet ofDC-1 Os, and numerous orders for the firm's new enhanced airborne colli­ sion avoidance system. Although U.S. government spending for electronic components was leveling off, international opportunities for military avionics retrofits and space systems were on the rise. Commercial space programs were also projected to grow rapidly, and ACI had landed key initial contracts with NASA and Lockheed Martin.

ACI was not new to international business, est ablishing its first foreign ... , i subsidiaries in 1936. Global treasury was headquartered (along with corporate } near·-·· f O'Hare International �q�orc outside Chi�ago. Corporate treasury was a profit center, (;/,i.J:: and charged I% comm1ss10n on all sales. Treasury, however, passed on the currency · ·. risk to the business unit. If a local affiliate, joint venture, or subsidiary required local currency, then Treasury would try and match those requirements by accepting the AIR in the local currency. For many developing countries where ACI had little or no activities (such as Pakistan), chis was only done on an exception basis. Treasury did agree that Aviation Controls could use their local affiliates to manage the sale o( aviation products, but would have to pay between 3% and 8% for currency cover (the ' . final fee would have to be negotiated between Treasury and Aviation Controls). This was something that the division had an unwritten policy of not doing; the standard transfer charge imposed by Treasury cut into sales margins.

(j) Pakistan International Airlines (PIA) Pakistan International Airlines Corporation (PIA) was the national flag carrier of .: : the Islamic Republic of Pakistan. Founded in 1954, PIA operated both scheduled

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