Take-off for Etihad Airways’ Payment Solution

by Adam Boukadida, Deputy Treasurer, Etihad Airways

Since Etihad Airways was founded in 2003, it has been one of the fastest growing airlines in the history of commercial aviation. Today we operate scheduled flights to almost 120 destinations throughout the world from our hub in Abu Dhabi, capital of the UAE, with a modern fleet of around 120 aircraft. Not only does the airline reflect the very best of Arabian hospitality, but it has been instrumental in enhancing the prestige of Abu Dhabi as a centre of hospitality, geographically well positioned between East and West. Etihad Airways has a clear strategy to be the best and most innovative global airline of choice, challenging and changing the established conventions of airline hospitality, for which it continues to win numerous awards. Our group treasury shares this commitment to excellence, which was recognised recently with the 2015 TMI Corporate Recognition Award for Payments. In this article, Etihad Airways’ Deputy Group Treasurer, Adam Boukadida, describes the project that led to this award, which was part of a wider transformation of Etihad’s treasury technology infrastructure.

Key Points

• The speed of Etihad Airways’ growth since its formation in 2003 meant that it had to replace its original TMS with a fully centralised technology infrastructure across the group, which could cope with its diverse payments needs across 70 countries and a large range of banking requirements
• After launching an RFP and evaluation of the results, the airline chose D+H as its partner for payments and SWIFT connectivity, Openlink’s Fundur for core treasury and risk management and 360T for online dealing
• These systems are now almost complete, having been implemented on time and within budget, and the author outlines the benefits already gained plus further planned initiatives including streamlining the transaction banking structure and rationalising bank accounts

Treasury organisation

As Etihad Airways was formed as recently as 2003, our treasury function was established less than a decade ago, during a period of rapid growth from the early days as a small airline to become a world-leading aviation and tourism group. Our treasury needs and challenges are unrecognisable compared with the early days. Not only has the scale and complexity of our activities expanded significantly, but the scope of treasury’s responsibilities has also extended beyond that of many group treasury functions. In addition to core treasury activities such as cash, liquidity and risk management, we are responsible for asset financing (e.g., our fleet) group insurance (including medical, fleet, personal and corporate liability insurance etc.). We are also responsible for our group payment solutions function, fraud prevention and managing relationships with card and merchant providers. We have a multicultural team of 47 people employed in treasury across these functions, comprising 24% Emirati nationals and the remainder from countries across the world, and a wide range of professional backgrounds.

Project background and priorities

Given the speed and scale of change that we have experienced over the past decade, we have implemented various treasury tools at different times. However, we recognised that we needed to take a systematic approach to building a treasury technology infrastructure that would meet our current and future needs. While some of our requirements were familiar to many large multinationals, we had a series of requirements that were more specific to the airline industry, particularly in financial risk management, and payments and cash management. From a risk management perspective, for example, we have large FX and commodity exposures, particularly to fuel, which accounts for around 40% of our base line costs.[[[PAGE]]]

Our payments (both incoming and outgoing) and bank connectivity needs were very diverse. Our business extends across more than 70 countries in all continents, each of which has its own payment systems, payment culture and formats, even to the extent of being city-specific. As we make payments and collect cash across our entire network, we work with local as well as international banks, which has led to a very large number of banks, accounts, electronic banking systems and formats. Consequently, one of our key objectives was to rationalise our bank connectivity through a single, secure channel. Connecting to our banks via SWIFT was an obvious route to achieving this, but we did not have the platform or resources to manage the connection directly, so we decided to outsource this to a specialist service bureau. Our aim was to leverage this solution for all payments to SWIFT-enabled banks, both treasury and commercial payments, with sufficient scalability and resilience to enable us to roll out the solution across our network, and support increased volumes and complexity as our needs evolve in the future.

Creating a treasury technology infrastructure

Although we had implemented a treasury management system (TMS) in the past, this was the first time we would be implementing a fully centralised technology infrastructure across the Etihad Airways group. Having defined our requirements in detail, we launched a request for proposal (RFP) and evaluation process. Through this process, we identified a variety of best-in-class, complementary solutions that would allow us to meet the strategic and operational objectives we had specified. We selected D+H (formerly Fundtech) for payments and bank connectivity, together with Openlink’s Fundur for core treasury and risk management, and 360T for online dealing. Although we already had 360T in place, this was used on a stand-alone basis, whereas our goal was to achieve full straight-through processing (STP) from front to back office, so integration across these solutions was key. At the same time, we were also replacing our ERP, so integrating this into our treasury technology infrastructure was also a priority.

There were a variety of reasons for selecting D+H as our partner for payments and SWIFT connectivity. The company had a proven track record in managing SWIFT connectivity globally and achieving impressive STP rates for both payments and collections. D+H was able to demonstrate how the solution would enable us to reduce operational and compliance-related risks and support an increasing volume and complexity of transactions in the future. Finally, we had CEO commitment from D+H that the company would be opening a regional office in UAE, which has since happened. As a global corporation with a proud Middle Eastern heritage, it was very important for us that D+H, as a key technology partner, had a similar commitment to the region.

Progress and achievements

Following a smooth implementation that was completed on time and on budget, we have now gone live on D+H for payments and bank connectivity for commercial payments, and expect to go live for treasury payments in April 2016 at the same time as the new TMS, Fundur.

Although the project has not yet been fully completed, we have already made significant improvements in automation and control of payments and bank connectivity, and enhanced cash visibility through timely, consistent access to bank statements. As a result, we are in a far better position to optimise working capital and liquidity, whilst also increasing operational efficiency and reducing risk. This has been due in no small part to the efforts, abilities and professionalism of both the Etihad and D+H teams.

Around 98% of our commercial payments are now managed through SWIFT via D+H across more than 50 banks – a huge achievement given the volume, diversity and complexity involved. As a result of this project, one of our major transaction banking partners in UAE started supporting SWIFT corporate access for commercial payments, which has been a major achievement for us and other corporations headquartered or operating in the region. The remaining 1 or 2% of payments are through banks that are not SWIFT-enabled, so these are managed by our outstation country finance managers or by treasury through the relevant banking system or manually, depending on the bank’s level of sophistication.

Lessons learned and next steps

As this was not the first treasury technology project that we had implemented, we were able to bring these experiences to the project, so it proceeded smoothly without incident or business disruption. The D+H project differed from other elements of our technology transformation project as the number of stakeholders was far higher, both internal and external, and therefore communication was essential. Furthermore, every bank approaches a connectivity project slightly differently, so testing of every type of communication with every bank is essential.

Once we have gone live on all the solutions that comprise our new treasury technology infrastructure, we will have a robust, functionally-rich and secure platform on which to base our treasury activities both now and in the future. Alongside our technology project, of which payments and bank communication are key elements, we are also looking to streamline our transaction banking structure by implementing regional partnerships, rationalising bank accounts, standardising the calculation of fees and optimising surplus cash. Our new payments and bank connectivity solution with D+H is a key enabler for these initiatives as we can now add or change bank relationships easily, without the need to implement new technology and processes, allowing us to make decisions based on the needs of the business, rather than constraints of the technology that underpins it.