Case Competition: Syndicate 5

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Case Competition: Syndicate 5

Sling Aircraft

Audio Recording 27 Jun 2021 at 13:44:29

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Syndicate 5 Weekday

Hammaren 1829702

The Team

Olga 2410428

Rohan 1031655

Sandile 2400687

Nomadlozi 859880

Curtis 2391569

Paul 0100357R

Mafemani 2394836

Dennis 2387187

Audio Recording 27 Jun 2021 at 13:44:54

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Introduction

Sling Aircraft will be exploring the development a 5-seater plane, the team was then briefed to conduct an In-depth analysis on the viability and feasibility of this project These are the areas that the team evaluated/analysed: Problem statement Key issues - current situation Analysis - current situation Various viable options Financial model (appendix) Comparisons of options Recommendations Implementation

Audio Recording 27 Jun 2021 at 13:46:50

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Problem Statement

Problem Statement : Does the current business model support the development and production of a certified 5-seater plane?

Audio Recording 27 Jun 2021 at 13:47:32

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Sling Analysis

Key Issues

Marketing

Organisational Design

Finance

Operations

No defined roles / Role clarity ​ No defined structure ​ Inefficient Technology Undocumented processes ​ Key man dependency risk ​

Rely on their own perception of what the customer wants​ International market development challenge Ad-hoc marketing strategy​ Marketing and operations not aligned

No Finance management system finances run on Excel Depend on owners’ capital Cost of certification: $6m Source of funding Much higher net operating income on certified aeroplanes Role of distributor

Missed order deadlines Quality issues Lack of stock management system

Audio Recording 27 Jun 2021 at 13:52:15

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Analysis Cont...

Low-cost Strategy- Current Situation

Cheaper than competitors More value than the competitors Success for both the 2 & 4 seater planes

New Market – 5-Seater

Uncertainties on the way forward strategic direction Certification cost R100M Untouched market

Aviation authorities have different regulations per country Impact of COVID-19 has not had an effect on the company growth and sales Small aircraft are more appealing to the affluent market now due to pandemic Environmental sustainability - an electric and fuel cell prototype of the Sling TSi is being developed Aviation requirements on the certification of aircrafts Strong competition from Cirrus with their SR22/22T

Sling has a strong 140HP engine which is perfect for the 4-seater plane: no competition in the market No alignment to the vision and mission with regards to the proposed expansion Strengthen their position in the market with a certified aircraft. Regulation always poses an issue in the industry

Not disruptive

Audio Recording 27 Jun 2021 at 14:13:41

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Strategic Option 1

New Market – 5-Seater

Start selling RTF and kit models of the 5-seater at the same time as the certification process begins so that revenue can be generated, and process can be partly funded by profits. Raise debt for the balance and retain current shareholding.  Retain distributor in the US for both kit and certified sales, marketing and distribution and Sling focusses only on production .

Audio Recording 27 Jun 2021 at 14:15:08

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Strategic Option 2

New Market – 5-Seater

​Focus on RTF and kit sales in the developing world (South America, Africa, Australia, Asia) and kit sales to US initially.  Once the company is assured of the market demand for a certified 5-seater (± 2 years) they certify in the US with funds generated partly from sales and debt.

Audio Recording 27 Jun 2021 at 14:16:43

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Strategic Option 3

New Market – 5-Seater

Find a joint venture partner in the US to share certification and set-up costs and which will be responsible for marketing, sales and distribution under Sling brand only in the US.  Once certified, share operating profit in US on all sales (kit & certified). Sling retains profits from all sales (kit, RTF & certified) in all other regions. Once the company (Sling) is strongly cash-positive, the company may consider buying out the JV company to take full control in the US.​

Audio Recording 27 Jun 2021 at 14:18:19

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Comparison of Options

Financial analysis done between the three options Using the given operating profit margins for experimental vs. certified aircrafts Revenues and operating profits are calculated Capital investments are then determined based on the scenarios outlined in the three options together with the associated debt financing Net Present value is calculated on all three options from year 5 to 10 (Assuming ROI of 15%) Based on the analyses option 3 has the superior Net Present Value (NPV)

Audio Recording 27 Jun 2021 at 14:20:50

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The table below summarises the NPV calculated for the three options:

Comparison of Options (NPV)

NPV Option 1 R84,462,405 Option 2 R80,741,978 Option 3 R87,784,743

Audio Recording 27 Jun 2021 at 14:23:30

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Recommendation

Option 3 is the recommended option: Has the superior net present value (NPV) JV allows for distributed risk on operations and financing costs Sling retains control on all certified sales in all other regions Leaves the option of a buy-out of JV to gain full control of US operations once business is running

Audio Recording 27 Jun 2021 at 14:24:33

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Recommendations for Organisational Design

Structure Develop and implement Organisational Structure that is aligned to strategic objectives

Audio Recording 27 Jun 2021 at 14:28:15

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Technology – Optimise use of technology to improve business efficiencies in all areas of Business Operation e.g. Production, Finance, HR etc.

Systems & Processes

Processes Define operational processes that are aligned with the overall strategic direction – Low-cost production Document processes for continuity Document quality processes that are aligned with strategy

ERP Systems Integration ERP System needs to be configured to support and drive efficiencies across the entire value chain from suppliers to end users The system needs to be configured to facilitate a pull system i.e., minimal stock buffer to be kept and monitored by the ERP system. System should also be utilized to manage production line performance

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Recommendations For Addressing Key Issues

Audio Recording 27 Jun 2021 at 14:30:46

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Recommendations For Addressing Key Issues

Competencies and Skills Define key organizational competencies required for building certified airplanes Develop a strategy aligned workforce plan and identify sourcing strategies Hire key skills needed to drive strategy enablement

Culture Underpin entrepreneurial culture with a robust talent management strategy and employee value proposition   – Recruitment, development, performance management, rewards, retention, succession planning etc..

Marketing Develop and implement an integrated Marketing strategy that leverages technology and is informed by market and customer insights  Participate in more airshows similar to Experimental Aircraft Association but for certified market  Consider hiring a marketing resource in the US operating from distribution partner's premises or hiring a marketing agency for international market development

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Audio Recording 27 Jun 2021 at 14:33:25

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Implementation Plan

Activity Responsible person Timeline Put Together a team of JV deal makers CEO 2 weeks Shortlist, Rank, Conduct due diligence for the potential JV partner JV deal makers Up to 3 months Sign agreement with preferred JV partner CEO’s Up to 3 month Raise funding CFO’s Up to 2 months Set up production plant COO 12 months Complete prototype ready for certification COO Up to 48 months

Audio Recording 27 Jun 2021 at 14:34:26

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Conclusion

Based on the comprehensive analysis above the 5-seater plane is a viable expansion strategy. Explore the benefits of alliance partner in pursuing this venture The proposed business model i.e. including a JV partner in the US would support the development and production of a certified 5-seater aeroplane

Audio Recording 27 Jun 2021 at 14:35:43