by Patrick Coleman, Regional General Manager, IT2 Treasury Solutions
By implementing a TMS, Etihad Airways has improved the quality and reliability of its cash and financial risk management, promoted integration between treasury and other systems, and given management reporting a boost.
Airlines have strong and proven supply chain management methodologies and resources, as a result of procuring aircraft and purchasing fuel.
Etihad Airways is the national airline of the UAE. Set up in July 2003, it started commercial operations in November 2003 with Abu Dhabi, the capital of the UAE, as its hub. Its treasury department started out using a labour-intensive process based on spreadsheets, and a high level of manual intervention. But the increasing volume and complexity of treasury operations threatened to place the department under unacceptable levels of pressure. More and more team members would have to be taken on board just to keep things going. The higher levels of treasury activity were also accompanied by heightened levels and complexity of the financial risks being managed by the team.
Accordingly, the costs and risks of treasury operations were increasing. There was a compelling need to enhance the support for treasury operations, and make them more efficient and effective. Best-practice corporate governance demanded action be taken with a critical financial department such as treasury.
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Selection
Etihad Airways initiated a treasury system selection project in 2008. Subsequently, the implementation of a treasury management system (TMS) helped improve the quality and reliability of cash and financial risk management, integration between treasury and other systems, and management reporting. Etihad’s vice president of treasury, Ricky Thirion, set the solution selection process in motion. Airlines have strong and proven supply chain management methodologies and resources, as a result of procuring aircraft and purchasing fuel. Etihad adjusted its processes to accommodate the rather different requirements of licensing a treasury management system. The key organisational feature of both the selection and implementation projects was the close involvement of interested parties and not just treasury. Procurement, legal, finance, IT, audit and others all played their part, with an appropriate level of responsibility.
Etihad decided to install the IT2 treasury management system to improve process management and transparency, and help the business to manage cash and financial risk more efficiently. As Etihad has a strong IT department, it chose to install, operate and support the system on its own technology.
Implementation
Etihad and IT2 worked closely to define and agree the scope of the solution to support current and future operations. This exercise helped ensure the solution implemented corresponded closely with Etihad’s objectives, and provided a useful means for monitoring and managing the project.
To implement an integrated treasury system in as short a time as possible, Etihad set a realistic budget and challenging project plan. The challenges relating to the tight timeline of the project were met by appointing a project manager as a consultant, linked to the in-house project management office and its governance standards and software tools. This strategy helped the project team stay focused on what Etihad and the vendor required, and contributed to highlighting potential slippages. Challenges were recognised and solutions implemented with as little delay as possible.
Results
Etihad completed its TMS project 34% under budget, as a consequence of its professional application of strong project planning, user involvement in implementation and management techniques. Etihad’s workflows are now controlled, documented and secured by the TMS, so the treasury team and the company’s management can focus on their key professional duties relating to cash, financial risk and treasury accounting management, without concerns about the accuracy and completeness of the information they are using for their decisions. They have been liberated from struggling with spreadsheets, and no longer depend on expensive, error-prone and inefficient human operations to support a critical financial management function. Treasury now provides faster and more accurate management reporting to the board. The new environment is also highly intuitive for auditors, facilitating an enhanced audit process.
Next steps
The next stage for Etihad’s automation process is to upgrade to IT2 version 7.0, which supports enhanced financial and operational aircraft leases, completing the objectives of the original TMS selection project. In the future Etihad may evaluate possible extensions including enhanced counterparty risk management and cash visibility using eBAM (electronic bank account management) if these facilities are found to have value in today’s rapidly changing treasury management environment.
Etihad is now enjoying the benefits of using an integrated treasury management system. The improvements in transparency, control and accuracy move Etihad further ahead in the pursuit of best-practice treasury operations.
This article was originally published in the October 2010 Middle East Treasurer by The Association of Corporate Treasurers (ACT), London, United Kingdom. www.treasurers.org and is re-printed with their kind permission.