Essay on AirTex Aviation Case Analysis

996 Words Sep 20th, 2013 4 Pages
Case: Airtex Aviation
Ted Richards and Frank Edwards, long-time college friends and Harvard Business School graduates, purchased Airtex Aviation on December 29, 1989. At the time of the purchase, Airtex Aviation, located in Center County, Texas, was finishing up a fiscal year in which they had losses of sales totaling 500,000 dollars and a negative net worth. So, it was obvious to Frank and Ted early on that they were going to have their work cut out for them in order to turn their “fixer-upper” into a successful, profitable business. Ted and Frank knew little about the aviation industry at all going into the purchase, so they were planning on relying completely on their management skills to achieve their goals.
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The managers would maintain control over their profit centers, establishing prices for their products and services, both internally and externally, and also had the ability to purchase products internally or externally, if it was in their best interests to do so. Each manager was also allowed to purchase any needed capital equipment or supplies without a purchase order limit, and the ability to hire, fire, and administer salaries for each employee. Ted removed the power from the accounting department for accounts receivable and gave them to department heads, who had no experience in dealing with receivables. He also granted them credit-granting authority and responsibility for collecting the receivables, and established a set monthly charge against the balance of the profit center for past due collections.
Eventually, each department was creating profit and loss statements on their own and kept track of its own sales, receivables, inventories, and expenses. In order to tie all of these together, Ted managed an Administration Profit Center, which paid taxes, borrowed money, paid interest, utilities, bills, and other general administrative expenses. This profit center also levied monthly charges against each department for things such as Social Security taxes, accounts receivable (a monthly charge based on the amount and age of receivables), operating assets, rent, fire, and occupancy insurance, building maintenance and
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