Report on Finance for International Business - Euro Jet

Finance for International
Business

TABLE OF CONTENTS
INTRODUCTION...............................................................................................................1
Overview of Euro jet and its financial proposal.........................................................1
Advising the board:....................................................................................................2
FOREX and its theories:............................................................................................3
Analysing the NPV measurements for Euro jet plc...................................................5
Analysing the WACC for Euro jet UK plc..................................................................7
CONCLUSION...................................................................................................................8
REFERENCES................................................................................................................10

INTRODUCTION
Euro jet is a registered airline in Ireland and is listed in Dublin Stock Exchange
and was founded in the year 1980 and is a small airline. Euro jet is having very
ambitious future growth plan for coming years and relatively it is low cost no frill
airline. The present report will be covering how this airline will be growing in the
coming year and is having the future plan of year 2028. There are number of issues
which are related to future development of the airline and this require making
decisions. After UK's decision to leave the European Union by early 2019, Euro jet is
likely to lose right to free access to UK and its aviation market.
Overview of Euro jet and its financial proposal
Euro jet is facing many problems and issues regarding the future development
of the airline and board of directors of the airline need to make certain important
decision about it (Euro Jet, 2017). This was set up in 1980 and till the time, it is the
largest European airline in terms of seat miles flown per annum and is serving about
200 destinations of EU and North Africa. The major cities which the airline is
operating in are Dublin, Milan, Brussels, Stansted and Düsseldorf. Among these
cities, Stansted is the most important as 40% of the total aeroplanes are travelling
here only. Euro jet is very low-cost and low-price airlines by attracting a larger
customer base and higher market share to firm. The service quality of Euro jet is
very good and all the rivals are wanting to defend its market share. In the year 1992,
Europe deregulated the airspace giving the airline companies right to operate in
other countries of Europe (Ilushchenko and Onashchenko, 2017). After this
deregulation of airspace in Europe, many small and low-cost airline in Europe was
set up. But none of them can give challenge or defend Euro jet in terms of low price
and good quality of services.
Euro jet was earning about 40% of its revenue from passengers of UK and
this was certainly affected by UK's decision to leave EU till mid of 2019. However,
Euro jet lost the access of free market in the UK's aviation market and this greatly
risked 40% of total revenue of the company from UK (Euro Jet, 2017). Once UK
leave EU by mid of 2019, Euro jet and its revenue would be very hardly hit by this
decision as UK can have restricted the access to market of UK. At present time, the
airline is working under the European regulation having airworthiness certificate,
aircraft maintenance schedule, aircrew licences and airline operator certificate are
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issued by EU only. EU also check that 50% of ownership of any airline must be with
citizen of Europe and once UK is separated from the union, it will be having its own
rules and regulation of airline operations.
To avoid all sorts of risk and uncertainty, board of Euro jet has prepared two
possible contingency plans (Agnihotri, Hu and Krush, 2016). The aim of these plans
is to secure its business in UK and to avoid the outcome of EU-UK relationship on
their business.
Contingency plan 1
According to this plan, Euro jet would be leasing out 10 Boeing 737 aircraft
and creating a mini UK airline which would be called Euro jet (UK) plc. All the rules
and regulations of this airline will be regulated by UK only (Euro Jet, 2017). The
regulations include airworthiness certificate, aircraft maintenance schedule, aircrew
licences and airline operator certificate which are presently under EU.
Contingency plan 2
If the scenario relationship between UK and EU became the worst then Euro
jet would be buying the ready-made UK airlines. This will be helping the airline in
rapidly expanding its business in UK and handling all Euro jet business in UK.
Advising the board:
From both these plans, Euro jet will be preferring the contingency plan of
leasing out Boeing 737 aircraft and creation of mini UK airline known as Euro jet
(UK) plc (O'Halloran, Robinson and Brock, 2017). Now the question in front of board
of Euro jet is whether this plan is best suited for growing business in UK or not. The
company is planning to come under the agreement to lease out 10 Boeing 737
aircraft for almost 10 years starting from 2019 to 2028. $403 million is estimated as
the fixed annual cost for each year from 2019 to 2028. This aircraft will be situated in
Stansted and at the end of 2024, Euro jet (UK) plc will be renovating all its 10 Boeing
737 aircraft at the cost of £12 million per aircraft. As per the annual cost and revenue
projection for the year 2019 which will be the first year of its operations as Euro jet
(UK) plc is estimated to £676 million (Euro Jet. 2017). The expected annual growth
after 2019 till 2028 in schedule revenues will be about 1.02%. At the starting of the
contingency plan of leasing out 10 Boeing 737 aircraft, initial establishment cost will
be about £60 million to start the business in 2019.
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