Emerald and the CAA
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Originally Posted by OPFW
Administration
The role of an administrator is to get the company out of trouble and trading again if possible.
Administrators can be appointed to a company that is unable, or is likely to become unable, to pay its debts.
Administrative receivership
An administrative receiver is an insolvency practitioner who has control of the whole, or a substantial part, of the company's property and wide powers over the business.
The administrative receiver is mainly concerned with getting back the money owed to the secured creditor. The administrative receiver may sell the assets piecemeal, or sell the whole business as a going concern to pay off the secured creditor, and the costs of the receivership.
Thanks for the clarification, although their roles appear very similar to the layman. Both have the word Administrative, presumably reflecting the control exercised by both types of appointees?
Which situation is Emerald in, and does it matter anyway if it cannot meet its debts as they fall due and/or it has net liabilities and no new owner can be found?
Could either/both appointees recommence trading the business if the AOC is restored?
Can either allow further debts to accrue after they are appointed if they were to recommence trading?
Is it correct that the staff are still accruing pay if they have not been advised of their dismissal?
Management info given to crews attending CRM yesterday was that it would restart but implication was that only HS748 would be flying and that redundancies were innevitable.
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Originally Posted by AlphaWhiskyRomeo
From what I hear, it's bullsh1t that they have only gone into administration as a direct result of losing their AOC. I've heard that they has cashflow problems around a month ago which meant problems paying sub-contracted aircraft operators.
From a financial point of view the company was not in great shape, but it was doing better, and after a review with the Bank and Accountants (with the lawyers present) they were given a clear mandate to continue the operation.
There are only TWO reasons that Emerald have now collapsed (because even with the greatest will in the world they are unlikely to survive in its present form) all created by an ego who put his own bravado before the employees and families that will suffer for his actions.....
1. The Accountable Manager continually thinking that he was better than the CAA and thinking that they would never dare pull his AOC, after all, why should he follow set down rules on the very basic functions of holding an AOC when the business of selling cheapo charters you have no crew for is far more important. Well what a fool he turned out to be.
If anyone thinks for one minute that the individual concerned was somehow victimised, I have it on good authority that he was asked THREE times to sort out the training mess and still failed to do so.
2. Years and years of late payments and battles with suppliers have come back to haunt them in a big way, now companies are only too glad to repay that attitude and are slapping writs on aircraft that could not possibly be paid quickly when there is no money coming in, on Tuesday there was a VERY good chance that JEM might have been flying by now, as every day goes by the vicious circle casued by an individuals ego can only result in oblivion being not too far off.
The only good thing that can come from this, is that certain individuals should NEVER be able to hold senior accountable positions in any UK airline again.
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Dare I ask
Dare I ask why if the company could have been flying on Tuesday and things are no further forward who's decision is it now to implement the requirements made by the CAA to reinstate the AOC? and why are things are still going round in circles .. company wants AOC back should company not be bending over backwards to accomodate the CAA's wishes ?
Was it Spock that said "the needs of the many outweigh the needs of the few?".
Was it Spock that said "the needs of the many outweigh the needs of the few?".
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Seen this time and time again in manufacturing industry.
Will the chairman do a pheonix and buy the assets he wanrs for a nominal sum and shed all the debt and liabilities to suppliers and staff. then launch emerald mk2 with the 748's and operate just as before.
yes some may point out the official possition of receivers / administractors. but there are ways around everything.
example: competitor of ours went into adminastrative receivership last year, turnover £ 1.5m, debtor book £250 k, creditors book £600 K, machinery value £250 k.
net result: started up new company with similar name, bought machinery from receiver (no one else got a look in, no option for open market auction) for £ 50 k, wiped out all debt to suppliers and tax / vat man. got out of obligation on property lease. said £ 50k went to receiver and his friend who valued machinery, made them very happy. no one else got anything.
All becaause they moved around title of assets and directors loans on such and goodwill. all legal.
Will the chairman do a pheonix and buy the assets he wanrs for a nominal sum and shed all the debt and liabilities to suppliers and staff. then launch emerald mk2 with the 748's and operate just as before.
yes some may point out the official possition of receivers / administractors. but there are ways around everything.
example: competitor of ours went into adminastrative receivership last year, turnover £ 1.5m, debtor book £250 k, creditors book £600 K, machinery value £250 k.
net result: started up new company with similar name, bought machinery from receiver (no one else got a look in, no option for open market auction) for £ 50 k, wiped out all debt to suppliers and tax / vat man. got out of obligation on property lease. said £ 50k went to receiver and his friend who valued machinery, made them very happy. no one else got anything.
All becaause they moved around title of assets and directors loans on such and goodwill. all legal.
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Emerald may well have appealed against the CAA's decision but knowing what many, including myself, know it would seem that the CAA make a correct decision.
Then, and with immediate effect and if they hadn't started doing so already, Emerald should have set about getting their house in order and if that meant bring in a top aviation 'expert' at the top then that's what they should have done.
Instead, it seems, that they chose to waste several days, valuable days, by appealing against the CAA decision thus one, including the CAA, may interpret this that they were still refusing to accept that they had 'focked up' and would prefer to argue than accept the decision.
Talk of operations commencing anywhere between now and three weeks from now would indicate an attempt to get the house in order and to achieve this one would think that every manager is setting about getting his own department in order, after all he/she has very little else to do at this time. If this were happening then the offices would be bustling with activity, is this happening or has the towel been thrown in?
Then, and with immediate effect and if they hadn't started doing so already, Emerald should have set about getting their house in order and if that meant bring in a top aviation 'expert' at the top then that's what they should have done.
Instead, it seems, that they chose to waste several days, valuable days, by appealing against the CAA decision thus one, including the CAA, may interpret this that they were still refusing to accept that they had 'focked up' and would prefer to argue than accept the decision.
Talk of operations commencing anywhere between now and three weeks from now would indicate an attempt to get the house in order and to achieve this one would think that every manager is setting about getting his own department in order, after all he/she has very little else to do at this time. If this were happening then the offices would be bustling with activity, is this happening or has the towel been thrown in?
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example: competitor of ours went into adminastrative receivership last year, turnover £ 1.5m, debtor book £250 k, creditors book £600 K, machinery value £250 k.
net result: started up new company with similar name, bought machinery from receiver (no one else got a look in, no option for open market auction) for £ 50 k, wiped out all debt to suppliers and tax / vat man. got out of obligation on property lease. said £ 50k went to receiver and his friend who valued machinery, made them very happy. no one else got anything.
All becaause they moved around title of assets and directors loans on such and goodwill. all legal.
net result: started up new company with similar name, bought machinery from receiver (no one else got a look in, no option for open market auction) for £ 50 k, wiped out all debt to suppliers and tax / vat man. got out of obligation on property lease. said £ 50k went to receiver and his friend who valued machinery, made them very happy. no one else got anything.
All becaause they moved around title of assets and directors loans on such and goodwill. all legal.
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Originally Posted by potkettleblack
Of course there is nothing to stop a group of pilots and groundstaff doing the same thing. Form a new Holdco for £100, put together a proper articles of association and profit sharing/dividend arrangement, work out how much you value your job and are willing to risk and approach the administrators with your offer. If successful put someone in charge who has commercial nouse and good relationships with the CAA and you never now just what might happen.
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And good relations with the workforce perhaps
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Good idea
A buyout sounds a good idea, enough people have put an awful lot of effort in bailing out a sinking ship...but if they were to work for themselves - like you said no telling what could happen!
Money might be a problem, a fair bit of investment would be needed etc but no reason why a serious effort couldn't work!!!
Money might be a problem, a fair bit of investment would be needed etc but no reason why a serious effort couldn't work!!!
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Money might be a problem, a fair bit of investment would be needed etc but no reason why a serious effort couldn't work!!!
You would be surprised what say 20 people putting in £100k could achieve which doesn't actually sound that much on paper or err LCD. Many buy outs actually have very little cash changing hands but security being offered to banks and repayment of debt through profits etc. Not much different to the Man U deal that the Glaziers pulled off really, although slightly smaller figures involved would be my guess
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potkettleblack has the right idea, but some of the mechanics of finance are wrong.
Any bank behind emerald would have no interest in converting debt to shares - at most, Emerald would be worth 4-5m, based on assets.
To put that in perspective, a bank would earn that in interest, in one day, on slightly over £1bn. Bearing in mind that RBS earnt twenty odd billion in profit, 5m is peanuts and not really worth the hassle.
Also, when you hear of banks 'investing' they usually arent directly taking shares in companies - typically they will be underwriting a share issue, debt provision or credit line. To say that RBS or whoever is behind Emerald would take a share is the equivalent of saying that Mastercard own a share in me cos i havent paid the bill.
Now, you are assuming that the bank would value the aircraft / offices / spares at the same rate as the owners do on their balance sheet? That is incorrect too.
There are many airlines that leverage finance against an aircraft for its commercial or resale value.
How do you value an aircraft type that is operated by maybe one or two other carriers around the world? It either has a) scarcity value (Such as the AN124s), or b)Junk value - such as the dodgier russian types.
So lets assume that Emerald have valued the aircraft at insurable rates. That puts a well maintained 748 at about $900,000in value. However market value for acquisition is about...wait for it....50% of that.
So the bank are immediately being asked to invest in a business with assets that are possibly overvalued, have literally no resale value, and can only be operated by a group of very select individuals (The trained pilots and mechanics of Emerald). Fine and dandy say the fly boys, we will do a good job - but the aviation industry proves otherwise. Pilots are constantly arguing for higher wages, less hours etc etc. All reasonable enough to you guys, but not to the financier.
Now before you all go mental at me, you have to remember who has the money to invest (The financier/Bank) and who wants it (The chaps looking to buy the airline), its all about vested interests, and who holds the purse strings.
Put yourself in the banks shoes - if they remain behind Emerald, they will be held at the mercy of a bunch of whining aircrew and engineers who want the latest gadgets for the aircraft, and dont want to fly too many hours. They will also be the owners of technically worthless assets, with little if any chance of resale.
Now in the pilots and engineers shoes, you are being held at the mercy of a bloodsucking venture capitalist or money grabbing bank, who has done nothing to help the airline out of its current predicament.
So ignoring alll of that, you mention that buyouts usually involve debt - very true. These deals are referred to as leveraged buyouts.
To give you an example. i want to buy a bakery, that takes in 2k profit a month (24 a year). It gets valued at 72k by the lawyers - fine and dandy. Now for me to acquire this, i dont need to find 72k. I need to work out what the payments are to service 72ks worth of debt a month. So lets assume that that figure comes out at 1800 per month loan repayment over 5 years. We all agree, and ive picked up the company, and 200 quid a month income for putting exactly how much money down?
Now this deal only works if the company that i am acquiring has one of two things: a) no debt at all or b) strong enough cash flow to support my debt.
Whats the bets that Emerald has either of these qualities?
That all sounds fairly bleak, but Pot has the right sentiment - if enough people actually put their hands in their pockets, finance can be found. Its called lock in money - if me as a bank knows that the company failing is really going to hurt you financially as an individual, i am more inclined to think you will work your nuts off to make it suceed, and consequently i am far more inclined to come to an arrangement to back your buyout.
my fingers hurt so im stopping typing now.
Any bank behind emerald would have no interest in converting debt to shares - at most, Emerald would be worth 4-5m, based on assets.
To put that in perspective, a bank would earn that in interest, in one day, on slightly over £1bn. Bearing in mind that RBS earnt twenty odd billion in profit, 5m is peanuts and not really worth the hassle.
Also, when you hear of banks 'investing' they usually arent directly taking shares in companies - typically they will be underwriting a share issue, debt provision or credit line. To say that RBS or whoever is behind Emerald would take a share is the equivalent of saying that Mastercard own a share in me cos i havent paid the bill.
Now, you are assuming that the bank would value the aircraft / offices / spares at the same rate as the owners do on their balance sheet? That is incorrect too.
There are many airlines that leverage finance against an aircraft for its commercial or resale value.
How do you value an aircraft type that is operated by maybe one or two other carriers around the world? It either has a) scarcity value (Such as the AN124s), or b)Junk value - such as the dodgier russian types.
So lets assume that Emerald have valued the aircraft at insurable rates. That puts a well maintained 748 at about $900,000in value. However market value for acquisition is about...wait for it....50% of that.
So the bank are immediately being asked to invest in a business with assets that are possibly overvalued, have literally no resale value, and can only be operated by a group of very select individuals (The trained pilots and mechanics of Emerald). Fine and dandy say the fly boys, we will do a good job - but the aviation industry proves otherwise. Pilots are constantly arguing for higher wages, less hours etc etc. All reasonable enough to you guys, but not to the financier.
Now before you all go mental at me, you have to remember who has the money to invest (The financier/Bank) and who wants it (The chaps looking to buy the airline), its all about vested interests, and who holds the purse strings.
Put yourself in the banks shoes - if they remain behind Emerald, they will be held at the mercy of a bunch of whining aircrew and engineers who want the latest gadgets for the aircraft, and dont want to fly too many hours. They will also be the owners of technically worthless assets, with little if any chance of resale.
Now in the pilots and engineers shoes, you are being held at the mercy of a bloodsucking venture capitalist or money grabbing bank, who has done nothing to help the airline out of its current predicament.
So ignoring alll of that, you mention that buyouts usually involve debt - very true. These deals are referred to as leveraged buyouts.
To give you an example. i want to buy a bakery, that takes in 2k profit a month (24 a year). It gets valued at 72k by the lawyers - fine and dandy. Now for me to acquire this, i dont need to find 72k. I need to work out what the payments are to service 72ks worth of debt a month. So lets assume that that figure comes out at 1800 per month loan repayment over 5 years. We all agree, and ive picked up the company, and 200 quid a month income for putting exactly how much money down?
Now this deal only works if the company that i am acquiring has one of two things: a) no debt at all or b) strong enough cash flow to support my debt.
Whats the bets that Emerald has either of these qualities?
That all sounds fairly bleak, but Pot has the right sentiment - if enough people actually put their hands in their pockets, finance can be found. Its called lock in money - if me as a bank knows that the company failing is really going to hurt you financially as an individual, i am more inclined to think you will work your nuts off to make it suceed, and consequently i am far more inclined to come to an arrangement to back your buyout.
my fingers hurt so im stopping typing now.
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Also if the company is liqudated (Or placed in administration) you can write to the administrator and DTI as a creditor, demanding further investigation into the conduct of the directors of the company.
If any of them are found to have prejudiced the creditors or the operations of the company in any way, then they can be struck off as directors, and found personally liable.
FYI if you are owed a salary at the time of the company being foreclosed, you are a creditor (It still owes you money).
If any of them are found to have prejudiced the creditors or the operations of the company in any way, then they can be struck off as directors, and found personally liable.
FYI if you are owed a salary at the time of the company being foreclosed, you are a creditor (It still owes you money).
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Sorry to spoil the fun, but I hear there are at least two potential interested parties waiting in the wings.
Only one of these I hear is in the same line of business and is NOT interested in 3 a/c types.
I sense the bits that are worth anything could be flogged to several buyers.
Only one of these I hear is in the same line of business and is NOT interested in 3 a/c types.
I sense the bits that are worth anything could be flogged to several buyers.
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Originally Posted by Daede1
2 interested parties, neither are aircraft operators at present.....
I hear one is 'connected' to a current UK operator/lessor ?
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potkettleblack has the right idea, but some of the mechanics of finance are wrong.
If your a bank/supplier/whoever with your back against a wall you would be surprised what people are willing to accept. To outsiders accepting 30-40p in the pound might be unreasonable yet to a bank with a debt book in the billions it will be an acceptable loss to take.
The value of the a/c is really a secondary issue. Assuming the bank is the main creditor we are dealing with then their sole aim is to recover their debt. In undertaking an MBO all you are really doing is asking them to keep a portion (or all) of their debt in. Whether this is as a mix of debt or equity is semantics although doing it as a mix will enable the company a degree of breathing space and provide improved operating cashflow. In return typically the bank will go for security from the people behind the MBO such as 2nd mortgages etc. By putting in place a management team with a proven track record then you give the bank confidence that they will get their debt repaid according to the repayment schedule.
Your points about whingeing pilots and engineers etc are a bit naive. The mechanics of how the new Holdco operates is all dealt with in the business plan that will be agreed with the bank in anycase. It will include any capital expenditure plans and deal with whatever "gadgets" you can think of or not as the case may be. Having a CEO & management team that shows commercial experience of the freight market and impresses the bank will be key as will presentations to the past customers to win the contracts back which will no doubt be an integral part of a successful deal going ahead. As will presentations to the existing staff securing their support for the deal and ensuring their buy in.
Anyway there are many ways to skin a cat so to speak so no real point in discussing semantics until such time (if ever) that someone fronts up and if necessary we can all chip in with some advice.
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The problem for 'Emerald Bakery' is that the shop is closed because Health & Safety' have found a rat's arse in a French Stick. The customers are now looking to shop elsewhere on the High street. The suppliers, although used to being paid persistantly late may not want to write off the debt to the previous owner and allow new debt to pile up with the new owner. Not all the staff are going to hang around to see if a new owner can be found and whether or not they have escaped the redundancy list, which they know is being drafted as they await their fate. The staff having been poorly paid for years couldn't raise a whip-round let alone venture capital.
Last edited by MOB P45; 12th May 2006 at 15:11.
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Sorry, maybe i should change my profile to detail what i do now. Did i mention i work in venture capital? sorry, my mistake.
With regards to my being 'naive' i think you need to take a deep breath and read the post again. It illisutrates the different points of view on this issue.
By placing second mortgages on properties, you are really just reiterating what i mentioned in my post:
''Its called lock in money - if me as a bank knows that the company failing is really going to hurt you financially as an individual, i am more inclined to think you will work your nuts off to make it suceed, and consequently i am far more inclined to come to an arrangement to back your buyout.''
Emerald is a fairly unique situation, with an odd aircraft fleet, large company engineering setup and mindset with small aircraft numbers, very well trained staff who have lost an AoC over training issues, and an odd management oversight system.
Also, debt and /or equity are not semantics - thats a very silly comment. Equity costs nothing to service, and does not affect cash flow. Debt requires servicing, and therefore draws money out of the company.
With regards to my being 'naive' i think you need to take a deep breath and read the post again. It illisutrates the different points of view on this issue.
By placing second mortgages on properties, you are really just reiterating what i mentioned in my post:
''Its called lock in money - if me as a bank knows that the company failing is really going to hurt you financially as an individual, i am more inclined to think you will work your nuts off to make it suceed, and consequently i am far more inclined to come to an arrangement to back your buyout.''
Emerald is a fairly unique situation, with an odd aircraft fleet, large company engineering setup and mindset with small aircraft numbers, very well trained staff who have lost an AoC over training issues, and an odd management oversight system.
Also, debt and /or equity are not semantics - thats a very silly comment. Equity costs nothing to service, and does not affect cash flow. Debt requires servicing, and therefore draws money out of the company.