...fLufthansa Case Study Herr Heinz Ruhnau decision to buy 20 airplanes from Boeing in 1985 for $500.000.000 was a mistake, so the Board of Lufthansa should fire him due to poor judgement. His strong feeling that the US exchange rate was going to drop, it wasn’t based on any evidence, so he should have postponed buying the planes until after the rate had actually dropped, in order to save company money. Regardless of the speculations that he had about the exchange rate, he should have put options on the money to save the company from higher losses if he’s intuition was not correct. There were 5 possible hedging alternatives. First was to remain uncovered, the riskiest option, which it depends on how the exchange rate will change in the coming year. In this case it would the the most profitable, but still a big risk to make such a decision. The second one was to apply a full forward cover which allows the company to buy forward contracts for the entire amount and eliminate the risk. In this case, Lufthansa pays $1.600.000.000 due to the current spot exchange rate and it doesn’t depend on how the rate would change. The third alternative was to buy Foreign Currency Options, this means to buy put options and let the expire, then purchase dollars for a lesser amount. This would have cost the company $1.246.000.000 and it would be the most profitable decision. The last alternative was to Buy Dollars Now which required the company to have all the money and hold them until the...
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...Lufthansa Case Study 1. Should the Board of Lufthansa retain Heinz Ruhnau as chairman? Should Ruhnau justify his actions? No, The Chairman of Lufthansa, Heinz Ruhnau, was criticized for his handling of the company’s exposure. The Minister of Transportation in Germany (who had ultimate authority over the airline), criticized Ruhnau for hedging 50% of the exposure which resulted in 187,500,000 marks more than if the company had not covered. As a result, Ruhnau was only offered a short term renewal contract as Chairman by the Minister of Transportation. 2. Do you think Heinz Ruhnau's hedging strategy made sense? In order to evaluate the hedging strategy, show the results for all the hedging alternatives – uncovered, full forward cover, partial forward cover, currency option, and money market hedge. Show calculations in the appendix Hedging Alternatives 1. Remain uncovered 2. Full forward cover 3. Option hedging 4. Money market hedge 5. Some combination of the above alternatives Remain Uncovered Cost: High unless the dollar depreciates Risk: Extremely high Full forward cover Cost: Only an opportunity cost if the US Dollar depreciates Risk: low Foreign currency options A put option on the DM at DM 3.2/$, could locked in DM 1.6 billion plus the cost of the option premium (DM 96 million). The total cost of the purchase in the event the put was exercised would be DM 1.696 billion. Money Market Hedge Obtain the $500 million now and hold those funds in an interest-bearing...
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...Jan. 19, 2011 Lufthansa Case Analysis Lufthansa’s chairman, Herr Heinz Ruhnau, purchased twenty 737 jets from Boeing (U.S.) in January 1985. The agreed price of the jets was $500,000,000 payable in one year. The U.S. dollars has been rising steadily and rapidly since 1980, and was about DM3.2/$ in January 1985 (Chart 1). Chart 1- DM/$ Exchange Rate 1980-1985 Herr Ruhnau believed U.S. dollar will depreciate very soon based on its appreciation in last 5 years. That is, exchange rate between DM and USD will favor Lufthansa when the company pays $500,000,000 to Boeing. However, it would be too risky to leave the whole amount uncovered. In order to hedge some risk, Herr Ruhnau used forward contract to cover 50% of the payment, and left the other 50% uncovered. There are five alternative hedging ways to choose: 1. Remain uncovered It is the maximum risk approach. If e= DM2.2/$ by January 1986, payment to Boeing would be DM= 2.2 * 500 million= DM 1.1 billion If e= DM 4/$ by January 1986, payment to Boeing would be DM= 4* 500 million= DM 2 billion 2. Full forward cover This approach would lock in an exchange rate of DM 3.2/$. Payment to Boeing would be DM= 3.2 * 500 million= DM 1.6 billion 3. Partial coverage Cover part of the payment with forward contract. Like Herr Ruhnau did, 50% covered by forward contract, DM= 3.2 * 250 million= 0.8 billion. If e= DM 2.2/$ in January 1986, total cost would be 0.8 billion + 2.2 * 250 million= DM 1.35 billion 4. Foreign...
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...1) Which of Drunker's "7 tasks of tomorrow's manager" does Wolfgang Mayrhuber undertake? Are there any he doesn't undertake and should? ANSWER Manage by Objective : He is expecting operating profits of €1bn in 2008. As part of the treatment, Mr Mayrhuber acquired Swiss, the national airline, in 2005, and improved Lufthansa’s business and first class offerings with better seats and a raft of extra services, including a bespoke first-class terminal at its Frankfurt hub. As a result, premium revenues are up by 50 per cent. Take more risk : 1) Mr Mayrhuber ordered big cost cuts and the sale of non-core units 2) Mr Mayrhuber revised the airline’s financial reporting to identify loss-makers as a prelude to remedies, even if this made it easier for investors to grumble about the business mix. The less transparent Air France group faces no such complaints, he notes. Take strategic decisions : 1) Mr Mayrhuber acquired Swiss, the national airline in 2005, and improved Lufthansa's business and first class offerings with better seats and raft of extra services. As a result, premium revenues are up by 50%. 2) He hived non-core businesses and improved transparency. Build an integrated team : He helped a flight attendant get the in-flight entertainment system running. His engineering expertise has allowed him to help his customers on more than one occasion. Communicate quickly and clearly : When he took charge of Lufthansa's passenger business in 2001, he wanted to gauge...
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...Case Study Analysis: Lufthansa: To Hedge or Not to Hedge… By Mathew Stubbs and Michael Homewood In January 1985, Lufthansa, a German airline company procured twenty new 737 airplanes from Boeing. Under the chairmanship of Heinz Ruhnau, a price of US$500 million was negotiated. The agreed price was payable in United States Dollars (USD) upon delivery of the aircraft in one years time, on January 1986. Since Lufthansa’s operating revenues were primarily in Deutsche Marks (DM), Ruhnau needed to determine an appropriate solution to minimize the resulting foreign exchange risk. In the year preceding the expansion purchase, Lufthansa was experiencing periods of extensive growth. In 1984, the company experienced an overall increase in passenger and freight volume of seven and seventeen percent respectively. This increase in volume resulted in a 7.14% increase in revenue to US$4.5 billion, and a 134.78% increase in net profits to US$54 million. At the time, significant speculation had been surrounding the value of US dollar and its anticipated direction. By January 1985, the US dollar was at record levels against other currencies (See Exhibit 1), and the state of the interest rate differential between the US and Germany suggested it would steadily increase (See Exhibit 2). The sustained strength of the US dollar, combined with the booming US economy influenced people to believe the dollar would continue to appreciate. During this period of time, central bankers from the G-7 countries...
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...Case Study Analysis: Lufthansa: To Hedge or Not to Hedge… By Mathew Stubbs and Michael Homewood In January 1985, Lufthansa, a German airline company procured twenty new 737 airplanes from Boeing. Under the chairmanship of Heinz Ruhnau, a price of US$500 million was negotiated. The agreed price was payable in United States Dollars (USD) upon delivery of the aircraft in one years time, on January 1986. Since Lufthansa’s operating revenues were primarily in Deutsche Marks (DM), Ruhnau needed to determine an appropriate solution to minimize the resulting foreign exchange risk. In the year preceding the expansion purchase, Lufthansa was experiencing periods of extensive growth. In 1984, the company experienced an overall increase in passenger and freight volume of seven and seventeen percent respectively. This increase in volume resulted in a 7.14% increase in revenue to US$4.5 billion, and a 134.78% increase in net profits to US$54 million. At the time, significant speculation had been surrounding the value of US dollar and its anticipated direction. By January 1985, the US dollar was at record levels against other currencies (See Exhibit 1), and the state of the interest rate differential between the US and Germany suggested it would steadily increase (See Exhibit 2). The sustained strength of the US dollar, combined with the booming US economy influenced people to believe the dollar would continue to appreciate. During this period of time, central bankers from the G-7 countries...
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...provide a foundation of understanding of international finance and the critical options for corporate financial management within the global markets. Intensive reading will establish the basis of information on international financial structure, processes and techniques. Cases will identify important real issues and provide experience in understanding alternative solutions and developing methods to reach these solutions. Course Description The course explores the responsibilities of financial managers of multinational firms or firms with multinational affiliates, suppliers, or product markets. Topics covered emphasize exchange rate risks and hedging using derivative securities such as futures contracts, forward contracts and options. International payment mechanisms and financing and trade strategies are examined and applied in a shareholder-value maximization framework. Texts and Course Materials Fundamentals of Multinational Finance, 2003, Moffett, Stonehill and Eiteman; Addison Wesley; ISBN-0-201-84484-2. Cases in International Finance, 2000; Moffett; Addison Wesley; ISBN 0-20170086-7 Course Expectations 1. Commitment to reading and understanding of text and other assigned materials. 2. Understanding of all case assignments – with or without written reports. 3. Active and informed participation in class discussions. 4. Timely and effective completion of assignments. 5. Energetic and effective involvement in team projects,...
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...beginning of the 21st century, its CEO/ Chairman, Yang-Ho Cho undertook various transformation initiatives - for instance, improving service quality and safety standards, technology integration, upgrading pilot training, better business focus; putting in place a professional management team, improving corporate image through sponsorship marketing, etc. He gave a new corporate direction in the form of '10,10,10' goal. However, Korean Air is held up by a slew of challenges. Among which are inefficiencies of - Chaebol system of management, possible clash of its cargo business with its own shipping company, limited focus on the domestic market and growing competition from LCCs. How would Korean Air manage growth as a family-owned conglomerate? The case offers enriching scope for analysing a family business’s turnaround strategies, with all the legacy costs involved. Pedagogical Objectives • To discuss the (operational) dynamics of Korean Chaebols - their influence/ effects on the country’s industrial sector and the economy as a whole • To analyse how family-owned businesses manage the transition phase - from a supplier-driven economy to a demanddriven economy • To identify all the possible reasons for Korean Air ’s turbulent times and assessing whether they are controllable or not • To critically evaluate Korean Air ’s transformation efforts - in terms of growth, productivity and cost cuts, especially the efficacy of '10,10,10' goal in a family-run business • To identify various challenges...
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...contemporary organizational issue you find intriguing. Use one field site or example for the entire paper. Also, be explicit about the level issue. For example, if you are using the concept of personality then it is an individual level issue. A list of concepts and their related levels is provided in a separate document. Focus of paper-related requirements: Outline: Submit a formal outline for your paper, complete with references. The purpose of the outline is to help you organize your content, which also results in increased clarity, improved logic, and better structure of the paper. There may be adjustments from this document to your final paper, but at this stage the paper should not require major revisions. Final Paper: Use a case study format for the structure of your paper. Identify and analyze issues using course concepts, and propose recommendations for the organization you are focusing on. Use of course concepts 1. Use a minimum of 8 concepts for the paper. Include a list of the concepts you used at the beginning of the paper. 2. Briefly define each concept you use within the text (a paragraph or two). 3. For each concept, write a diagnosis at one level (e.g., the person level). For example, you might write “The employee misses work frequently due to stress from conflict with her supervisor.” Note, stress and conflict would require definitions.) 4. For each concept, write a solution or solutions. Identify the level(s) you addressed in Step 2...
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...Calendar Overall for Case-Study Presentation & Mid-Term Exam – MGT 4760 (Strategic Management) Sem 1, 2012/2013 Sec 8 (M-W) No. | Week | Topics | Class Day | Date | Schedule | Details | | 1 | Chapter 1: The Nature of Strategic Management | 1- Mon 2- Wed | 10/912/9 | | | | 2 | Chapter 2: The Business Vision and Mission | 3- Mon 4- Wed | 17/919/9 | | | | 3 | Chapter 3: The External Assessment | 5- Mon 6- Wed | 24/926/9 | | | | 4 | Chapter 4: The Internal Assessment | 7- Mon 8- Wed | 1/103/10 | Quiz 1 (Chapter 1.2.3) | | | 5 | Chapter 4: The Internal Assessment | 9- Mon 10- Wed | 8/1010/10 | | | | 6 | Chapter 5: Strategies in Action | 11- Mon 12- Wed | 15/1017/10 | | | | | BREAK(22/10 – 28/10) | 13- Mon 14- Wed | 22/1024/10 | | | | 7 | Chapter 5: Strategies in Action | 15- Mon 16- Wed | 29/1031/10 | Case Presentation Session 1Case Presentation Session 2 | Group 1:L: Lia Hilaliah (Case Study 3)Group 2:L: Mas Syairah bte Mohamad (Case Study 5) | | 8 | Chapter 6: Strategy Analysis and Choice | 17- Mon 18- Wed | 5/117/11 | | (Mid-Term Exam 7/11 Wednesday)Seminar Room 1.1 | | 9 | Chapter 6: Strategy Analysis and Choice | 19- Mon 20- Wed | 12/1114/11 | Case Presentation Session 3Case Presentation Session 4 | Group 3:L: Mohamed Sheikh (Case Study 9) Group 4:L: Izzati Nor binti Salleh (Case Study 14) | | 10 | Chapter 7: Implementing Strategies: Management and Operations...
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...ARCTIC MINING CONSULTANTS Case Synopsis Arctic Mining Consultants is a mining company that deals with mineral exploration. In this case study, the project given is staking 15 claims in Eagle Lake, Alaska. The project Manager was Tom Parker, who has a wide experience and specialized knowledge in all nontechnical aspects of mineral exploration. He is a geological field technician and field coordinator for Arctic Mining Consultants. He assigned his previous field assistants John Talbot, Greg Boyce and Brian Millar to help him complete the project. The job required them to stake at least 7 lengths each day in order to be completed on time. However, the whole team has became very tense and agitated, especially Tom Parker, as the deadline was just around the corner and there’s still many to be finished within the limited time. The problem became worse with the way Tom managed and treated his team. The only motivation to the team was the $300 bonuses promised by the company when the job is done on time, otherwise, they might wished to give up already. This happened because working as a field assistant and in long-working hours only giving them low wages, which is considered unreasonable compared to what they have to do. During the eight hard days, everything had actually proved the strengths and weaknesses of each of the team members, including Tom. Case analysis symptoms 1) What symptom(s) exist in this case to suggest that something has gone wrong? The symptom(s) to suggest...
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...Running head: CASE STUDY XYZ Case Study XYZ: An Examination of Project Procurement Management Practices Group 12 John Doe Jane Smith Bobbie Sue University of Maryland University College Project Procurement Management, Semester XXXX, Section XXXX Professor Stephen R. Guth MMMM DD, YYYY [No Abstract or Introduction required for this assignment] The Inception Phase Rating Scale: 5—Excellent, 4—Very Good, 3—Good, 2—Poor, 1—Very Poor |Project Management Area |Inception Phase | |Scope Management | | |Time Management | | |Cost Management | | |Quality Management | | |Human Resource Management | | |Communication Management | | |Risk Management | | |Procurement Management | ...
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...policy. 2) Employee conditions: a. Lack of motivation b. Compensate for low wages by over indulgence of free food allowance c. High turnover rate due to availability of high application rates. d. Employees are mostly college and high school students e. Lack of respect for managers. f. No incentive to increase motivation. In the case study Perfect Pizzeria, the area supervisor has many problems that need his attention. The largest appears to be the organization. In this case study I will assume that the area supervisor has the authority to affect change within his organization (i.e. he is the franchise owner). Being in an area with few job opportunities should give him the perfect opportunity to recruit bright, ambitious, and motivated people to staff his pizzerias. How can the area supervisor change his organization to achieve a more fluid corporate culture? I think this change can be achieved by human resource changes, structure changes, motivational changes, and reward for good performance as well as accountability for poor performance. Each one of these areas will require a change from the corporate level. For the sake of my case study I am going to assume that the area supervisor (franchise owner) can lobby to achieve this change within the organization. The first area to look...
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...letters in industry or for a class, knowing your purpose and audience will help determine what information to include. Generally, business letters follow a particular format, although your instructor or company may require you to use alternative formats. This guide provides writers with an introduction to writing business letters. Case Studies: This guide examines case studies, a form of qualitative descriptive research that is used to look at individuals, a small group of participants, or a group as a whole. Researchers collect data about participants using participant and direct observations, interviews, protocols, tests, examinations of records, and collections of writing samples. Starting with a definition of the case study, the guide moves to a brief history of this research method. Using several well documented case studies, the guide then looks at applications and methods including data collection and analysis. A discussion of ways to handle validity, reliability, and generalizability follows, with special attention to case studies as they are applied to composition studies. Finally, this guide examines the strengths and weaknesses of case studies. Desktop Publishing: Desktop publishing is the process of laying out and designing pages with your desktop computer. With software programs such as PageMaker and Quark Xpress, you can assemble anything from a one-page document to a...
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...Brussels and Bradshaw In response to the case study, Brussels and Bradshaw is a well-established financial institution that offers their clients competitive and innovative solutions for their community and work environments. The banking institution offers a summer internship to bright and driven individuals. The internship includes 14 weeks of very intense training and long hours. Interns are paid $20,000 for the contract. During the screening process, out of all the possible candidates Audrey Locke was selected. Audrey has some experience as an assistant, assurance analyst and financial planning analyst. Brussels and Bradshaw is operating in more than 25 countries globally; this case study takes place in Toronto. Many behavioral issues in the Brussels and Bradshaw institution are unprofessional and stressful. Job stress is defined as feeling one’s capabilities, resources, or needs that do not match the demands or requirements of the job (Hitt, Miller, & Colella, 2011 p. 249). Working 70 and 80 hours per week or possibly 120 hours will put a major burden on anyone, especially someone new to the working environment. Audrey is excited with her internship and very eager to learn. She is assigned a mentor and buddy by the business development manager, Kelly Richards. Kelly has 10 years of experience. Although associates consider her human resources, Kelly’s job is strictly administrative. Audrey is never introduced to her mentor and her buddy, Christine Page is very...
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