Green Airlines

ProHub Comment

This case tests the candidate's ability to move beyond initial financial analysis when the direct operating model fails. The key insight is recognizing that while Green Airlines would break even operationally, the slots have significantly higher value to larger competitors with scale advantages. This requires strategic creativity to identify an arbitrage opportunity—buy low, operate at zero profit during the mandatory period, and sell high to a buyer with greater economies of scale.

Estimated Time 15 minutes
Difficulty Medium
Source IESE
50 / 100
Due to the recent bankruptcy of a major airline, the aviation authority of Brazil recently opened an auction for landing and takeoff slots in one of the country’s biggest airports. A slot is the right to land and depart from an airport during a given time period. Green Airlines, a small, regional airline operating in the North part of the country, was offered 10 slots, for the total price of $100M. If Green accepts to buy the slots, it will have to operate them for at least 5 years. The owner and CEO of Green Airlines approached your firm looking for an advice on whether they should buy the slots or not.

Clarifying Information

  1. An airport slot is a permission granted by the owner of an airport, which allows the grantee to schedule a landing or departure at that airport during a specific time period
  2. Green airlines currently does not operate in the airport that is being discussed
  3. Green airlines currently only flies regional flights and has no plans to include international flights in its offerings
  4. Green airlines currently does not have the necessary planes to operate the slot. Management will need to lease 5 airplanes to operate the 10 slots
  5. The $100M that Green Airlines would have to pay is a one-off payment, due before operations start
  6. The main objective of the owner/CEO is financial gain
  7. Green Airlines can sell the slots, but only after five years of operation
  8. If Green Airlines does not buy the slots, they will be sold to another airline