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Hard Growth Strategy Merger & Acquisition

Green Airlines

#Transportation
ProHub Comment

This case requires candidates to move beyond basic financial analysis to recognize a strategic arbitrage opportunity. The key insight is that while Green Airlines cannot profitably operate the slots themselves (zero profit scenario), the slots have substantial value to larger competitors with operational advantages (bigger planes, higher load factors). The candidate must calculate this differential value and recommend a 5-year hold-and-resell strategy rather than operational integration.

Estimated Time 36 minutes
Difficulty Hard
Source IESE
20 / 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 purchase 10 airport slots for $100M. Direct financial analysis shows zero profit from operating the slots, but the candidate should recognize these slots are worth ~$240M to larger airlines like Airlines A or C due to operational efficiencies. The optimal strategy is to buy, operate for the mandatory 5 years at minimal profit, then sell to a competitor for $135M+ profit.

Key Insights:

  1. Direct operational analysis (revenue $10M/month vs costs $10M/month) yields zero profit, which initially suggests rejection
  2. Strategic value creation requires recognizing that bigger competitors (300-seat planes) generate $12M/month revenue vs Green Airlines’ $10M/month, creating $24M/year perpetual profit worth $240M in present value
  3. The slots function as a financial asset to be arbitraged rather than an operational opportunity for Green Airlines to integrate
  4. Regulatory constraints (5-year mandatory hold) create the profit window: buy at $100M, hold 5 years at breakeven, sell at $135M-$240M
  5. Success depends on understanding scale economics in aviation (load factors, plane sizing, ticket pricing) and recognizing when to exit vs integrate