Taking wings again: A study of British Aerospace Asset Management
An organization has to meticulously and intelligently go through their finances and
transactions so as to get the most out of their capital. Managing assets is one aspect that is
very relevant to any organization. Let’s take a closer look at how British Aerospace dealt
with Asset Management in rough weather.
British Aerospace is a world leader in aerospace and defence, and it currently operates as
BAE Systems. The company deals with the design, development, manufacture and testing of
civil and military aircraft, guided weapon systems, artillery and ammunition, along with
other high technology system and equipment. The annual sale of the company surpasses £8
billion and an order book of more than £22 billion. It ranks among the world's
largest defence contractors and is one of the major suppliers for the US Department of
Defense. British Aerospace Asset Management was responsible for the management, sales
and leasing of a worldwide portfolio of over 400 regional jet and turboprop airliners.
What is Asset Management?
In simple words, Asset Management is the process of managing assets to make them work
to obtain the best possible returns. In other words, it is making the best use of an
organisation’s assets in order to maximise shareholder value and to provide the best
possible returns to other shareholders in the organization. Taking the case of British
Aerospace, an example for their assets would be their fleet of planes that they could lease
This case study of Asset Management will highlight the principles involved in Asset
Management and examines how British Aerospace managed its portfolio of aircraft in order
to get the best possible returns from them.
Aircraft manufacturers had a relatively stable environment to operate in all through the
1950s and 60s. As airlines were mostly government owned, they used to buy planes outright
that left little financial responsibility with the producers of the aircrafts. A change came
about in the 1980s when airlines were subjected to a process of privatisation and many new
airlines entered the market. They did not
want expensive assets such as aircrafts on
their books and they wanted the flexibility
to expand. They started preferring to
lease aircrafts, rather than buying them.
Aircrafts were bought by the leasing
companies and leased out to the airlines.
But for the arrangement to work, aircraft
manufacturers like British Aerospace had
to guarantee the lease payments. British
Aerospace would continue making
payments if a company went belly up, and
this is where the problem started.
The Gulf War of 1922 resulted in economically difficult times and lead to many airlines
folding up, leaving British Aerospace in a difficult position. They were unable to sell the
aircrafts they produced and moreover they had a large number of leased aircraft returned
to them. British Aerospace was facing a crisis as large amounts of capital were standing still
in hangars. The potential liabilities resulting from its obligations to leasing companies were
staggering, and their share price collapsed to 98p at one point.
Drastic, dramatic and urgent steps were needed to be taken by British Aerospace. They did
that by cutting the production rate for new aircraft, shutting down the Company’s Hatfield
factory and creating a new company which became British Aerospace Asset Management.
The purpose of the new company was to manage existing assets effectively in order to
maximise growth potential.
The new business followed the philosophy of a small business with a flat structure and small
teams. The work was done autonomously with a clear business plan and there were three
steps defined to bail out British Aerospace.
To get the inactive fleet back into service.
Increase the lease rates.
Disposing off assets.
By using the innovative policy of leasing and selling aircraft, British Aerospace Asset
Management successfully overcame British Aerospace’s asset difficulties. Intelligently and
creatively thinking about asset management helped British Aerospace handle a very serious
liability for the company. Residing at the heart of all modern business organizations is an
excellent asset management team, and British Aerospace embodied this with their
successful turnaround of an ailing business.