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Medium Growth Strategy Merger & Acquisition

Green Airlines

#Transportation
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 26 minutes
Difficulty Medium
Source IESE
10 / 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
Mock Interview
Interviewer

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.

You

Thanks. Before analyzing, I'd like to clarify a few key questions...

Interviewer

Good question. Let me provide some background information...

You

Based on this, I suggest analyzing from these dimensions...

AI Score
Structure Analysis Communication Business Sense Quantitative
Practicing...
Score coming soon
Practice this case with AI Mock Interview

Green Airlines must decide whether to invest $100M in airport slots. Initial analysis shows zero operating profit, but strategic thinking reveals these slots are worth $240M to larger airlines with bigger planes. The optimal strategy is to buy, operate for 5 years as required, then sell to a competitor for $135M+ profit.

Key Insights:

  1. Direct operating economics are critical but insufficient—must look at strategic alternatives when baseline analysis shows poor returns
  2. Scale advantages matter significantly in airlines; bigger planes at same load factors and ticket prices generate substantially higher revenues
  3. Asset arbitrage opportunities exist when smaller players can access valuable assets that larger competitors value more highly
  4. Regulatory constraints (5-year mandatory operation) can be turned into opportunities if viewed as a temporary holding period before resale
  5. Candidate should move from analysis to creative problem-solving when initial conclusion doesn’t serve the client’s financial objectives