Published: April 01, 2011
As a young and fast-growing company, the scale and sophistication of easyJet’s treasury function has developed considerably. When Paul Phillips, Group Treasurer joined the company in 2006, he recognised that the processes and technology underpinning the treasury function had become outmoded, a view shared by internal audit. In particular, there was insufficient segregation of duties, creating potential control issues, and the spreadsheets that were used to record and report on transactions lacked auditability and resilience. As a first step, the organisational structure was revised so that treasury accounting reported into financial control, creating a better definition of tasks and introducing a ‘four eyes’ principle into the transaction process. Secondly, the company made the decision to select and implement a new treasury management system (TMS) for managing its financial and and fuel transactions and removing the dependence on spreadsheets
We recognised that the selection and implementation of a new system would be time consuming, and also required a high degree of project discipline. Like most small treasury departments, we lacked any surplus resource, and also wanted to take advantage of best practices in project management, so we appointed Ernst & Young to provide professional project management services and co-ordinate each stage of the process. Although some companies work with a treasury consultant for this type of project, we decided that based on our specific project needs, we had sufficient specialist treasury knowledge within the department, and that independent project management expertise would provide a better complement to our existing skills base.
The selection and implementation of a new system would be time consuming, and it also required a high degree of project discipline.
Once the decision to implement a new TMS had been made, we sent a questionnaire to all the key internal stakeholders to understand their requirements for a new system, in terms of reporting and analysis, usability, transaction support and control. Having collated the results, we then devised a request for proposal (RFP) which was sent to six potential suppliers. Based on the responses to the RFP and initial project demonstrations, this list was quickly reduced to three,one of which also dropped out as its capabilities were better suited to financial institutional, as opposed to corporate treasury needs.
The remaining two systems were reviewed by the stakeholder panel that had contributed to the initial questionnaire, with a unanimous decision to select City Financial’s system, eTC. Since then, the company has been acquired by Wall Street Systems. There were a variety of reasons for this decision. In particular, the full loan and lease schedules of our fleet could be managed as a core capability, and there was a specific module in the system for commodity hedging.[[[PAGE]]]
In contrast, while the alternative system we considered could be used to manage these activities, the functionality was not designed specifically for the purpose. Another factor supporting our decision was that eTC is a hosted system, so would not require considerable IT resources. easyJet has a very strong IT function, but as customer-facing technology, such as our website, is such a critical element of our business, we prefer to dedicate this resource to activities that directly contribute to a positive customer experience as opposed to back-office functions. This has proved to be the right decision as we have had largely uninterrupted service over the two years during which we have used the system.
We implemented the system rapidly,and having signed the contract with City Financials in late April 2009, we started the parallel run in July and went live on eTC in October 2009.Although easyJet is a large organisation,our transaction volume is relatively modest,so we did not have too much static data to transfer. We also used the opportunity to review and revise data such as counterparty settlement instructions so that information held in eTC was as accurate as possible.We input most of our transactions manually, including full schedules for more than 170 of our fleet loans and leases, which was again an opportunity to ensure data was accurate.
As our project timeline was quite aggressive, we had to reduce our initial project scope a little; consequently, we are not yet using the system fully for cash positioning and hedge accounting, although we will implement these in due course. Even so, we had anticipated a more significant second phase to our implementation,on which we are now embarking. We use eTC for all of our transaction capture and processing, including payments and ledger posting and also take advantage of the automated confirmation matching service provided by Misys.
In addition, we are using the system for jet hedging, and recording purchases of Certified Emission Reductions (CERs) in response to our customers responding to our voluntary carbon offset offering at the time of booking. Developing this capability now is an important investment as buying carbon credits will become mandatory in the future when the EU Emissions Trading Scheme comes into force for airlines in 2012. Jet fuel is a critical element of our business, representing 40% of our cost base. Our aim is not to trade speculatively or gain a permanent advantage in the market, but to increase certainty in our future costs as far as possible and remain competitive. [[[PAGE]]]
Implementing eTC has brought a wide variety of benefits, in addition to being able to manage our financial and commodity transactions. Using a system with in-built control features enforces an effective segregation of duties and a disciplined review process. Accounting for our transactions is now fully automated, and our payments file is produced automatically. While we do not yet have an interface between eTC and our electronic banking system, we will introduce this once we have completed a review of our transaction banking business. We have integrated the system with Misys for confirmation matching, which provides a streamlined way of complying with our audit requirement to make payments only on confirmed deals. In the past, this was a cumbersome process, as we had to seek telephone or fax conformation before the payment cut off time.
One concern was that City Financials was a relatively small company, a risk that we tried to mitigate by setting up an escrow arrangement for lodging the source code with an independent agency. Consequently,we considered it a positive development when the company was sold to Wall Street Systems, as it addresses this issue.
We are now embarking on the second phase of our implementation, which will cement eTC as part of our overall treasury infrastructure, including integration with 360T and MyTreasury that we use for electronic dealing and price comparison of FX and money market funds respectively. Currently, our use of eTC is primarily for transaction recording; however, we anticipate that we will migrate all of our reporting to eTC in the near future. By introducing a system with a high level of control, flexibility and scope of coverage, we have established a firm foundation for our future development across our financial and commodity transactions, including carbon as well as jet fuel.
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