The Internal and External business environment of BBA Aviation plc

Table of Content

Report Overview 3 Introduction 3 Porter’s five competitive forces model 4 Threat of New Entrants: (Low) 5 Bargaining power of suppliers: (High) 5 PESTEL Analysis 6 Political and regulatory factors (Law) – (Threats) 6 Economic factors (Weaknesses) 6 Foreign Exchange Risk 6 Financial Risk Factors 7 Social and Environmental factor (Opportunity) 7 Corporate Social Responsibility (CSR) 8 Technological factors (Strength) 9 Dimension of complexity 10 Aftermarket services and systems 10 Flight Support 10 McKinsey 7S’ frame-work 11 Super-ordinate Goals 14 Harrison Learning Wheel (The eight-stage process) 15 Conclusion 16 References 17 Report Overview

This report is about BBA Aviation plc. The report will identify the company’s goals and objectives but will particularly focus its attention on the Challenges the company face both in its Internal and External Business Environment. The report will also cover both PEST and SWOT analysis to determine threats, opportunities and weaknesses and the role of the company’s Corporate Social responsibility (CSR) will also be examined. Factors such as the Porters five forces and the Dimension of Complexity will also be examined to better identify this Challenges faced by the company whilst the Dimension of Complexity will give a clearer nature regarding the Complexity of the company’s Environment at which it operates. Haven discovered these challenges the Mckinsey’s7S framework will monitor if there are any changes within the organisation that will require a change in its operations. BBA Aviation is a Global company which operates in 220 locations worldwide but only its operations in the UK will be examined in this report. However, haven said so; there are other factors such as the International and European Law that governs its operations. These also includes; The European Aviation Safety Agency (EASA) and the International Civil Aviation Organisation (ICAO). There are also National restrictions and legislation from the Civil Aviation Authority (CAA) and the Department for transport. Introduction

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BBA Aviation plc is an aviation services company that offers aftermarket services, flight support and system activities to the commercial and business aviation markets. Also, it offers the services to regional airline, military and commercial aviation operators, including fixed based operator (FBO) services, such as; grand handling, fuelling, turbine engine repair, aviation component and overhaul, hydraulic system and landing gear. (The times 2006) The company’s operations are segmented into two business operation namely; Flight support and Aftermarket services and systems. The flight support segment of the company engages in ground handling, offering refuelling, crew, passenger amenities, office rentals and hanger. (BBA Aviation, 2012) After services and systems business segments of the company engages in manufactures and supports engines and aerospace component, sub-systems and systems. The segment also comprises of engine repair and overhaul, legacy support and AP Precision hydraulics (APPH). The Engine repair and Overhaul segment is the Leading independent Original Equipment Manufacturer (OEM), the Signature Flight Support segment is the world’s largest and market-leading fixed based operator (FBO) network. The company’s Aircraft Service International Group (ASIG) is the world’s leading independent refueller. (BBA Aviation, 2012) BBA Aviation is headquartered in London. The company employees are estimated at over 12,000 at over 220 locations on 5 continents where its operations are performed. The company operates in twelve locations “airports” in the UK, Seven in England, four in Scotland and one in wales (BBA Aviation, 2012) Porter’s five competitive forces model:

Threat of New Entrants: (Low)
BBA Aviation plc operates in market segments that have relatively high barriers to entry in the fixed based operator (FBO) business. However, it is possible to have more than one fixed based operator (FBO) operator at major business aviation airports, the airport landlord will still be cautious of issuing too many leases for fear of diluting its own returns from selling the leases. (Westhouse, 2010) Another aspect of the barrier to enter is the Non-financial considerations which also have an influence. Signature’s brand strength and quality service reputation make it much more difficult for price-driven competitors to enter and build repeatable volumes/market share. If end users were truly price-sensitive, they would not be using private aviation in the first place, this is to say end users do not switch to a cheaper alternative as the market itself is capital intensive and has no room for cheaper alternatives. Also, tight credit markets reduce the risk of new entrants being successful at present, hence the smaller companies are falling plus they struggle with the fund needed to create any threat in the market. (Westhouse, 2010) Another deterrent to entry is the strong emphasis on safety and aircraft to remain legally airworthy in the aviation industry set by the European Aviation Safety Agency (EASA), the International Civil Aviation Organisation (ICAO), the Civil Aviation Authority and the Department for transport. The restrictions from this organisations acts as a barrier to entry by new companies without established track records. (Westhouse, 2010) Bargaining power of suppliers: (High)

Signature’s Flight Support main operating cost is aviation fuel, which it sells on to its private jet operator customers with a mark-up. Although, Signature’s Flight Support has little bargaining power, the cost is a pass through. Whereas, on the Maintenance, Repair & Operations (MRO) side of the business, the Original Equipment Manufacturer (OEM) do wield significant power in terms of their ability to dictate who can acquire licences to conduct maintenance work on their engines, given the strict safety and airworthiness regulations. (Westhouse, 2010) Given the analysis on the porter’s five, it is clear that threat of substitute is low. Also, the aviation market has a high level of barrier to entry and it’s also a high capital intensive market. The main challenge for Managers and leaders given the analysis overhead would be to main an already gained market share and provide a positive employee engagement by a way of specific and relevant job-related training and personal support. (BBA Aviation 2012) PESTEL Analysis:

Political and regulatory factors (Law) – (Threats)
Safe and dependable transport is essential to the UK society and the economy. (Department for Transport, 2012) Haven to meet the standard set by the aviation regulations, BBA Aviation ensures the company’s operations, meets and exceeds the regulations facing its Customers, these customers includes; regional airlines, business aviation, military and commercial aviation operators. (Relevant, 2012) The Civil Aviation Authority (CAA) uses a mix of Domestic, European and international legislation to protect consumers. These
legislations ranges from the minimum safety standards set by the International Civil aviation organisation (ICAO), to EC legislation protecting passenger’s rights, also including the European legislation on safety and the domestic regulation on the use of airspace. (CAA, 2012) The legislations are not limited but also, include the safety of Customers, Aircrafts and its Airworthiness, Airlines and its flight standards, Airport and Airspace. (EASA, 2008) Overall, this is a threat to the company and they could lose their operating license should they fail to meet these regulations, hence employee’s needs to be better informed and trained in their individual roles. Economic factors (Weaknesses)

The great challenge managers/leaders face in this context is the ability not to have the power to control or manipulate the economic factor such as the Interest rate and exchange rate. Exchange rate volatility is likely to continue to lead to some volatility in sterling profits, with most of the BBA Aviation earnings (and costs) in US dollars. (Westhouse, 2010)

Foreign Exchange Risk:
BBA Group has significant overseas businesses whose revenues, assets, cash flows and liabilities are mainly denominated in the currency in which the operations are located. BBA Aviation Group’s policy in relation to foreign exchange translation risk is not to hedge the income statement since such hedges only have a short effect. In relation to the balance sheet, the BBA Group seeks to denominate the currency of its borrowings in US dollars in order to match the currency of its earnings, cash flows and assets which are principally denominated in US dollars. (BBA Aviation, 2012)

Financial Risk Factors:
The Groups activities expose them to a variety of financial risks: market risk (including interest rate and currency risk), liquidity risk and credit risk. Overall the Group risk management policies and procedures focus on the uncertainty of financial markets and seek to minimise and manage potential financial risks through the use of derivative financial instruments. BBA Aviation does not undertake speculative transactions for which there is no underlying financial exposure. (BBA Aviation, 2012)

Under policies approved by the Board of Directors of BBA Aviation plc, risk management is carried out by a central treasury department. This department identifies, evaluates and hedges financial risks in close co-operation with the Group’s subsidiaries. The treasury policies cover specific areas such as; interest rate risk, credit risk, foreign exchange risk, use of derivative financial instruments and the investment of excess liquidity. (BBA Aviation, 2012)

Social and Environmental factor (Opportunity)

BBA Group has benefited from the growing population (demography) trend in the United Kingdom, increased holiday makers and Migration into the country has also increased its Group’s revenue (Mark Easton, BBC NEWS, 2010) In light of this growth, the demand for aviation services thus increase, which makes BBA Group to expand in its operations. The expansion brings about employee information and training to accommodate these changes, it also enables its customers to respond effectively and efficiently to meet the new aviation demand.

(Source: BBC NEWS, 2010)

Current migration figures shows a surprising and high increase in the number of people from different nationals, ethnics, gender and age migrating to Britain, not only by foreign workers or family reunion cases, but also by a big rise in the number of students coming to the United Kingdom. (Easton, M. BBC NEWS, 2010) Other reasons for migration to the United Kingdom includes; Business, Tourist, Holiday makers and also Political. Hence, the demand for inflow and outflow on aviation services in the United Kingdom seats on a rising trend. (Mark Easton, BBC NEWS, 2010) The more flying hours generated by its customers; the commercial, business, military and regional airlines the more beneficial this is to BBA Aviation. Haven said so, when a lower fuel price was taken into account in 2009, signature flight support revenue dropped 26%. (BBC NEWS, 2010) (Mark Easton, BBC NEWS, 2010)

Corporate Social Responsibility (CSR)

BBA Aviation focuses on delivering a long-term and sustainable value that integrates a continuous improvement and reliability, thus, embedding Corporate Social Responsibility (CSR) in its vision. Health and Safety, Employee, Environment and Community are BBA Aviation plc’s four key area of Corporate Social Responsibility (CSR). (BBA Aviation, 2012)

Technological factors (Strength)
Considering the strict safety restriction in the aviation industry Technological innovation is at its highest level with zero tolerance for error. BBA Aviation brandished its strength with the launch of the First support centre. BBA Aviation Engine Repair and Overhaul (ERO) unveiled its First Support global technical operations centre. The centre utilizes integrated satellite based tracking to deliver ultra-fast and efficient response to Aircraft on Ground (AOG). (Aviationpros, 2010) BBA Aviation believes this is a game changer for the engine support industry; First Support utilizes a highly integrated real-time system that can identify locations of field service technicians, mobile response vehicles, rental engines, and tooling at any given moment, any time of the day, around the United Kingdom and anywhere in the world. (Flightglobal, 2010) The support centre has the ability to track the precise status of every field service job as well as the availability of the company’s assets and personnel. It can also monitor air and land based traffic as well as the impact of airport delays and weather. Given an example; when a customer calls with an Aircraft on Ground (AOG) issue, the company can rapidly deploy solutions via the most efficient routes and means. BBA Aviation industry leading services enables them to deliver a step-function improvement over existing engine support services. (Flightglobal, 2010) The centre is staffed by highly skilled field service technical managers who are expert on all engine product lines serviced by. Staffing also includes; quality assurance, engineering, and logistics personnel. (Flightglobal, 2010) The Group also introduce the Aqua-save system that helps reduce the litres of waste water generated, this waste water are converted to new coolant or water that can be use for floor cleaning operations, whilst reducing operational cost and improve environmental performance. (MWP Advanced Manufacturing, 2010) Dimension of complexity:

1. The environment at which the organisation operates is very complex. There are heavy penalty that could affect the organisation should they under perform in their operations. These regulations are set nationally by the Civil Aviation Authority (CAA). Other complexity includes; the unpredictable changing demand in the Aviation industry, critical government policies, laws, regulations, taxes, interest. (Wensveen, J 2010) 2. BBA Group operations are Routine and Non-Routine. This also depends on the sector. Operation that requires baggage handling and de-icing are Routine, whilst the operation that providing landing gear, engine maintenance, supply’s of engine parts are non-routine. 3. BBA Group is diversified following its operations. The group is segmented into; Aftermarket services and systems:

Legacy Support: Leading supplier of Original Equipment Manufacturer (OEM) licensed legacy products. AP Precision hydraulics (APPH): Niche landing gear and associated hydraulic equipment provider. Providing integrated logistics support for landing gear and hydraulic systems Engine Repair & Overhaul: Leading independent Original Equipment Manufacturer (OEM) authorised engine Repair Company. (BBA Aviation, 2013)

Flight Support:
Aircraft Service International Group (ASIG): The leading independent refueller Signature flight support: Largest leading fixed base operation (FBO) i.e. Ground handling. (BBA Aviation, 2013)

4. BBA Aviation group generates more revenue by the more flying time clocked by its customers. (BBC NEWS, 2010) The operating environment has made its operation hostile by refusing the government to expand airports in the United Kingdom, the nation’s economy will benefits from these expansions in the long-run if plans are passed for approval. But there have been challenges from the environmental advocates and public resistance which has objected to the expansion plans and the creation of new run -ways. (The Guardian, 2013) Chairman of the Gatwick Area Conservation Campaign Brendon Sewill said: “When people begin to realise what is likely to hit them, there will be a tidal wave of public resistance.” He said there was no need for any new runway in the South East; Stansted Airport was less than half full, new larger aircraft were coming into use and there was sufficient airport capacity to last until 2050. (BBC NEWS, 2013) BAA Aviation proposed a short a second runway at Gatwick, extra runway at Heathrow, and two extra runways at Stansted. It said the first runway should be built as soon as possible, with land “safeguarded” at two other sites for future development. But it said the option of a £9bn new airport at Cliffe in north Kent should be excluded from the government’s final expansion scheme. While local residents and green groups will welcome the possible scrapping of the Cliffe plan, campaigners in Heathrow, Stansted and Gatwick reacted with “dismay” to BAA’s statement. (The Guardian, 2013)

Given the analysis above, there are little challenges from competitors as the barrier to entry is high. However, there are Environmental Challenges, Social challenges, Community Challenges and Political Challenges. But the Group’s biggest challenge is its Operational Improvement. BBA Aviation Chairman announced that the Group continue to invest in its employees and their development and made some changes to their organisational management structure at the beginning of 2013 to accelerate its growth and operational improvement programme. (BBA Aviation, 2013) The Group believes that with high operational improvement it can strive to reduce environmental impact through the more efficient use of resources, encourage innovative developments in technologies that support its business objectives and can offer environmental, community and social benefits. (BBA Aviation, 2013)

McKinsey’s 7S’ frame-work
BBA Aviation is divided into Two major Group namely; Flight Support and Aftermarket services and system. There are also further division into the major groups. This idea is to decentralise the Groups operations to the appropriate organisation with relevant skills needed to carry out each and every specific task. All of these groups work under the umbrella of BBA Aviation plc. The creation of these groups divides task and further provide coordination. It decentralises to focus on its individual area of specialisation and centralise to achieve the Group’s sole aims, goals and objectives.

BAA Aviation divided its strategy into four sections; Vision, Goal, Value and Key performance indicator. Vision:
BBA Aviation’s vision and overriding objective of growing exceptional long-term sustainable value for all stakeholders is shared by all Group’ operations which are individually and collectively focused on; continuously improving market-leading and innovative businesses, working together for greater gain through improved co-ordination and co-operation and being an employer of choice for empowered individuals in a safe and sustainable environment. (BBA Aviation, 2013) Values:

BBA Aviation plc employees are also unified around a common set of values; these values are a vital and integral part of the way the Group do business. (BBA Aviation, 2013) Goals:
Each year BBA Group’s Executive Management Committee sets a series of short and medium-term specific and measurable goals. These goals are then cascaded throughout the Group. Each Group’s business has actions aligned to the achievement of each of the short and medium-term goals and the execution of those actions is actively monitored by Group’s management. (BBA Aviation, 2013) Key Performance Indicators:

The successful execution of BBA Aviation’s strategy is expected to be value creative for shareholders. Key Performance Indicators (KPI) is used to monitor progress and any challenges faced within the Group. (BBA Aviation, 2013)

The Group decentralizes its operational system, given the decentralize nature of its business. Given this approach the procedure are different group differs, hence introducing the system of internal control that helps to identify risks and challenges faced by leaders and management. BBA Aviation internal control is essentially an ongoing process embedded in the Group’s businesses for identifying, evaluating and managing the significant risks faced by the Group, including; social, ethical and environmental risk. The Group considers that it has adequate information to identify and assess significant risks and opportunities affecting its long and short term value. The Group’s system is designed to manage rather than eliminate the risk of failure to achieve its business objectives. The internal control system can provide reasonable but not absolute assurance against material misstatement or loss; to the extent that is appropriate, taking account of costs and benefits. (BBA Aviation, 2013)

Business operations within the Group are routine and non-routine. Certain elements of the business are designed to accommodate the routine aspect of the group. The style here can be said to be flexible as there are specific way of carrying out its operations, changes in style would be said to be low. However, the style at the non-routine aspect of the Group’s operation will change from time to time given the uncertainty in the operations of its business. As the operation at the non-routine level can sometimes not be determined this will mean the style will always have a shift to accommodate any present situation.

BBA Aviation is committed to investing in and empowering its staff through training and education and to providing them with opportunities for rewarding careers. The Group provide each of its employees with specific and relevant job-related training and personal support while, at Group level, BBA Aviation develop programmes for example; leadership and general skills training that can be implemented across all sites. The Company provides employees with various opportunities to obtain information on matters of concern to them and to improve their awareness of the financial and economic factors that affect the performance of the Company. These include “all hands briefings”, staff forums and meetings with trade unions that take place throughout the year. In 2012 a number of communication initiatives have been launched to foster effective two-way communication around the organisation. (BBA Aviation, 2013)

BBA Aviation is highly skilled in all area of it operations. The Group’s strategy is to acquire a company that specialises in a given area of the Aviation business rather than founding a total new company for that specific area. The level of its operational skill is identified below; Flight Support:

Aircraft Service International Group (ASIG): Is the leading independent refueller. Signature flight support: Is the largest leading fixed base operation (FBO) for example; Ground handling. (BBA Aviation, 2013)

Aftermarket services and systems:
Legacy Support: Is the leading supplier of Original Equipment Manufacturer (OEM) licensed legacy products. Engine Repair & Overhaul: Is the leading independent Original Equipment Manufacturer (OEM) authorised engine Repair Company. (BBA Aviation, 2013)

Super-ordinate Goals:
BBA Aviation uses a range of key performance indicators (KPI), allied to the BBA Aviation vision and mission, to monitor the Group’s progress against the goals set to support the delivery of our overarching objective to grow exceptional, long-term, sustainable value for all stakeholders. To acquire the Groups super-ordinate goals, BBA Aviation set up a remuneration policy. This policy is intended to ensure that the remuneration of executive directors and other senior executives properly reflects their duties and responsibilities and is sufficient to attract, retain and motivate high calibre senior management capable collectively of delivering the goals of the Company. (BBA Aviation, 2013)

Haven critically gone through the company’s PEST Analysis, SWOT Analysis, Porter’s five forces, Complexity of Dimension, Corporate Social Responsibility and Mckensies 7S’ frame work. It is clear that the BBA Aviation is at a stable cruising leading point in the Aviation industry and their biggest challenge is the Operational Improvement to sustain this leadership position. For this to be achieved the employees need to undergo training events to understand the company’s vision, goals, aims, objectives and also to understand the internal and external challenges, hence empowering them with the understand of what is expected of them both as an individual or a group of teams. The Harrison’s learning wheel (eight-stage process) will be a better tool for employees to understand the company’s vision and challenges. The step-by-step process will equip the employees to a better understanding on how to achieve the skills and experience needed in other to be a partaker of the vision and to combat these challenges faced by the company.

Training refers to the acquisition of specific skills and knowledge that will enable an employee to perform their job effectively. Relatively, staff development concerns activities that are directed to the future needs of the employee, which may themselves be derived from the future needs of the organisation. (Palmer, A & Hartley, B)

Harrison’s learning wheel (The eight-stage process):
Establish needs:
This is to ascertain the individual, team, group or even management that needs training to better enhance them with the training needed to understand the company’s vision and challenges. Agree on purpose and objectives for the learning event:

Having to understand the employee that needs the training process, it will be important for these employees to know the purpose and objective of the training. The training is usually based on the employee to understand the immediate challenges faced by the company. Identify profile of intended population:

It is vital that the pedigree of the employee has to be established. The intrinsic and extrinsic profile of the employee has to be understood and a motivational reward to be put in place to incentivise the employee. Agree on strategy and the delivery of the learning event:

A strategy on how to deliver the learning event should be made flexible. Planning and control process have to be monitored in the event where funding may have come from other group of the company. Select learner cohort and produce detailed specification for the learning event: At the point leaders and manager would select employee that they think is deemed necessary to attend the learning event given the challenges faced in their department. Finalise strategy and design the learning event:

Ones these employees have been selected a proper strategy on how the learning will be passed on will then be drawn. After this process, a transformation will then be expected of these employees after haven to complete the training process. The finalisation of the training process will then hand the employee the skills and knowledge to better performance hence reducing the challenges faced by the company. Monitor and evaluate the change:

The evaluation process is a tool for leaders and managers to ascertain what has worked and what has not worked after the learning process. The evaluation process helps leaders and managers to tackle the remains of the challenges. Evaluation technique that will assist leaders and managers to acquire the learning outcome will range from interviews, questionnaires, briefings, practical test, written test and even the observation of behaviour will confirm an employee engagement. Haven gone through these techniques it will be clear to leaders and managers where lapses can be foreseen and a possible remedy to tackle the remains of the challenges uncovered after the evaluation technique process.


The operations of BBA Aviation plc are complex at the industry at which it operates. Given this complexity, their main challenge is Operational Improvement. The company in its response created specific job related training for staff at different level. The training focuses more on staff training and staff development. The Group involve their employees personally in these efforts and invest in new technologies, equipment and training and development programmes where the Group believe they can make a difference.
The Group businesses have much in common and plenty to learn from each other and the Group encourage working together, sharing ideas and good practices.

BBA Aviation plc is the leading aviation service provider in the United Kingdom compared to its competitors namely; Goodrich Corporation, Mercury Air Group, Inc. and TIMCO Aviation Services Inc. BAA Aviation doesn’t make the planes, but it does keep them flying. (BBA Aviation, 2013)

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