Saudi Arabian Aviation Process Management - Case Study Example

An Analysis of the SAUDIA Privatisation Project Abstract The SAUDIA project has been initiated by the Saudi Arabian Government for modernising the aviation system. A critical review of the SAUDIA project has been conducted. The SAUDIA project has extended for over 15 years since inception. The strategy was to privatise the aviation company; develop infrastructure; and create a framework for new entrants. The pace of liberalisation of the industry has been extremely slow. Project constraints of cost, quality, and time have been overrun. The SAUDIA project management failure can be attributed to factors including lack of well defined business case; selection of appropriate execution strategy; project team with supportive project management environment; effective resources allocation and management; efficient project execution; technical competence; sound organisational quality culture; well defined organisational structure; good communication; motivated staff; and quick and effective conflict resolution. Recommendations include stakeholder involvement; integration of stakeholder interests in the project; delegation of responsibilities; and strategic project management. Introduction Saudi Arabian Airlines (SAUDIA), the national carrier of Saudi Arabia, is the largest airline in the Middle East with over 117 aircraft. The airline operates one third of the flights, while the rest are operated by foreign airlines. SAUDIA has been the only carrier flying from and to Saudi destinations since 1945. The airline serves 16 million passengers annually across 50 cities around world (Shoult, 2006). Recent years have seen an increase in private aviation companies. Cordesman (2003) concluded that King Fahd was the first to advance the idea of privatising SAUDIA in 1994. The board allowed formation of a committee for restructuring in 1999. Investment banks were invited to prepare bids for privatisation in 2000. Contracts with consulting firms were signed in 2000, and studies began with the goal of floating the company in the stock market for subscription by the public. The privatisation process is still underway in 2010 raising doubts about the effectiveness of the process. A critical review of the process has been undertaken, and recommendations developed for effectively managing the process. Analysis of the SAUDIA Privatisation Project The Saudi Arabian Government has embarked on an ambitious plan to modernise the aviation system. A report published by the Center for Asia Pacific Aviation (2010) indicated that under the liberalised and modern system, passengers would have increased options and the sector’s efficiency would improve. A key component of the strategy is the privatisation of the aviation company; development of airport infrastructure; and creation of a framework for new entrants. However, the process has been plagued by slow pace of industry liberalisation. The process of privatisation began in 2006 with the company being divided into six units including catering; cargo; maintenance; airlines; ground handling; and flight academy. Alsharif (2010) indicated that the strategy was to privatise each unit individually and offer them to the public through IPOs. The first unit to be privatised was the catering unit, and the second unit to be privatised was the cargo unit. Christopher Parent, CEO, Saudi Arabian Catering Co, confirmed that the regulatory process was underway and expected to complete by the first quarter of 2011. Khalid al-Milhun, who had successfully privatised the Saudi Telecommunications Company, was appointed as the new director of SAUDIA in 2006. Niblock and Malik (2007) argued that the plan for privatisation was to sell services associated with SAUDIA rather than the airline itself. The Oxford Business Group (2009) reported that back-office and services were privatised in 2006, and since then SAUDIA has been gradually moving towards an IPO following a report from the Shura Council in 2009. Characteristics common to projects include projection of ideas and activities into new assets. Flouris and Lock (2008) argued that projects could be classified as civil engineering and construction; manufacturing; IT and management change; and scientific research projects. However, events and tasks present risk and uncertainty during project execution. Some common failures include exceeding project costs; late completion; or abandonment. Project management seeks to predict, plan, organize, and control resources and activities for successful project completion. The SAUDIA project has stretched for over 15 years, which could be attributed to project management failure. Figure 1. Project Objectives (Flouris and Lock, 2008) A report published by AME Info (2008) indicated that the strategy for privatisation has been expansion of its fleet, and enhancing operating systems. A deal was signed with Airbus and Boeing to procure 70 aircraft for over $3B. This includes 58 Airbus 320s, and 12 Boeing 787s. The deal was self-financed (Ghafour, 2010). Khalid al Molhem, director general, remarked that the procurement of 22 A320s for $1.7B was a part of the privatisation strategy. As an interim measure, agreements were signed with Gulf One Investment Bank and General electric for leasing 20 aircraft from them. Also, 15 E-170 aircrafts were purchased from Embraer for $400M. Upgrading the technology base included working with Sabre Airline Solutions for network management; operations systems; ground handling; and freight management. The strategy for privatisation was a staged process, where the state owned aviation services would be privatised in two years from 2008. 49 percent shares of the catering division were sold to Strategic Catering Company in 2007. The other five units are maintenance; ground services; cargo; and the Prince Sultan Aviation Academy. Ghafour (2010) reported that privatisation of the cargo and catering units had been successful. 49 percent of the Saudi Catering had been purchased by a consortium comprising of Abdul Mohsen Al-Hoikar Tourism and development and Fowzan Holding and Newrest Group. Calyon, a French investment bank, is an advisor for the initial public offering of the catering unit (UBM Aviation, 2010). 30 percent of Saudia Cargo had been purchased by Tarabut Air Freight Services. Al-Ahli Capital and Morgan Stanley are the financial advisers of the privatisation. Privatisation of the maintenance unit is in progress and is expected to be complete in 2011. BNP Paribas is the advisor for the privatisation of the unit. The maintenance unit is comprised of 5600 employees over 26 domestic and 30 international stations. Saudis account for nearly 87 percent of the total employees. According to Khaled Al-Molhem, a part of the core aviation stake would be sold to a consortium of national companies. The basis for privatisation would be developed by the financial consultants within the next two years. A part of the plan would involve the transfer of employees to the private sector. Alsharif (2010) reported that the merger of National Handling Services and Attar Travel Company was a step towards privatisation of the ground handling services. However, the due diligence process has dragged on. Abdulrahman Alhilali, managing director, ground handling services indicated that the percentages had been agreed and the final steps were underway. 75 percent would be held by Saudi Airlines, 21 percent by National Handling Services, and 4 percent by Attar Travel Company. Figure 2. Stakeholder Interests (Lutchman, 2010) Project constraints include cost, quality, and time. Flouris and Lock (2008) argued that often management has to emphasize the priority of these objectives based on characteristics of the project. Such decisions can influence allocation of resources, or the project organisation structure; resulting in a trade-off between project objectives. Factors influencing failure in the SAUDIA project objectives include lack of good project definition and business case; choice of appropriate strategy; supportive project management environment and project team; efficient allocation of resources; effective project execution; technical competence; sound organisational quality culture; well defined organisational structure; regard for employee benefits; good communication; motivated staff; and quick and effective conflict resolution. A balanced approach is desirable for aviation projects without compromising safety and reliability, since such projects have limited funds, and seek financial optimisation. Flouris and Lock (2008) argued that despite the generally accepted belief that there is a trade-off between cost and quality, the application of tools such as total quality management could result in the enhanced performance without additional costs. Labour and material costs are related to time, as cost inflation is a major factor. Other factors include inefficient working conditions such as materials shortage; missing information; poor planning; or communications. Project delays influence indirect costs - fixed or overhead costs - including management, administration, accommodation, services and general facilities. Project delays influence the costs of financing. It can be concluded from these factors that delayed the SAUDIA project have resulted in significant cost overruns. Project management procedures are directed towards satisfying project objectives of cost, quality, and time. Flouris and Lock (2008) recommended that these constraints have to be aligned with the requirements of the stakeholders; including the client, who is the primary stakeholders of the project. Stakeholders include the contractor; and investors. The project management team is responsible to developing the project objective and outlook for achieving project objectives. The project organisation is important for effective achievement of project objectives. The project management team is responsible for project planning and control. This includes identification of risks, and controlling them. The SAUDIA project has extended for over 15 years. The quality of the process has been compromised as stakeholders have not been able to come to an agreement over the privatisation process. Costs have been overrun as the project extended for over 15 years. According to the project charter released by the Government, the project cycle was from 2002 to 2007. However, at the end of 2010 project completion is not in sight. Employees of the company have been transferred along with the units to private entities. The plan involved reduction of nearly 10000 employees with retirement packages for employees meeting specific criteria (AME Info, 2008). This met with resistance from employees resulting in delays. Disagreements over privatisation of units over percentage of shares have resulted in delays. Project failure can be attributed to stakeholder management; development of project charter and management of the plan; and lack of leadership for co-ordinating the project. Recommendations for the SAUDIA Privatisation Project Jeston and Nelis (2010) recommended that steps for successfully project delivery includes establishment of business teams for building stakeholder management plan; identification of stakeholders and relationships; profile of key stakeholders; mapping of stakeholders for determining individual requirements; and determining best strategies for engaging and managing each stakeholder. Stakeholder claims, rights, and expectations have to be managed for avoiding influences contrary to the SAUDIA project objectives. Stakeholders should be identified and managed effectively with the objective of maximising the benefits and minimising potential negative impacts. The power-interest dimension should be deployed for devising strategies for effectively dealing with stakeholders. Figure 3. Power-Interest Relationship (Chinyio, 2010) The power-interest relationship has been illustrated in the figure 3 above. The ideal strategy for the SAUDIA project is to manage the stakeholders closely. The strategy for success is to develop a plan, and manage it effectively for successful completion. Figure 4. Managing Public Sector Projects (CH2M Hill, Inc. 2001) Recommendation 1: Involve Stakeholders SAUDIA project stakeholder interests and expectations should be identified for inclusion of stakeholders in decision making. Selection of stakeholder involvement techniques requires relating project needs with stakeholder expectations, local culture, and project constraints. Techniques for stakeholder involvement can be categorised by their goals. Techniques should be selected for enabling stakeholders participate in the decision making process. Figure 5. Stakeholder Management (Chinyio, 2010) Recommendation 2: Integrate Stakeholder Involvement with the Project A stakeholder involvement plan should be developed based on identification of project elements and opportunities for stakeholder involvement. Support can be gathered by inclusion of stakeholder involvement activities on the project schedule. This allows linking of techniques of stakeholder involvement with project tasks for making the public involvement integral to the project delivery process. Recommendation 3: Delegation of Responsibilities Responsibilities for activities should be delegated for credibility and sustainability. These include identification of leadership; technical input; logistics; and co-ordination of activities. Budgets should be allocated for each task, and expenses budgeted for each sub-activity. Resources including expertise should be evaluated and a determination should be made for lack of in-house expertise. Recommendation 4: Strategic Project Execution A focused and strategic approach is required for implementation of the work plan. Implementation has major steps including chartering of the project team; monitoring of project; and managing change. Champions should consistently communicate project progress, and maintain project momentum. Controversial projects such as SAUDIA require knowledge of community values; understanding of priorities; and adjusting to sensitivity of local politics. Conclusion The SAUDIA project has extended for over 15 years since inception. The project has been plagued by disagreements among stakeholders at various stages of the project. Stakeholder management has been ineffective. The project management team has been unable to co-ordinate stakeholder interests for arriving at mutually suitable agreements in a timely fashion. The SAUDIA project is a case of project management failure. Recommendations include identification of stakeholders and their interests; integration of stakeholders; delegation of responsibilities; and strategic project execution. References Alsharif, A. (2010). Saudi Airlines' catering unit eyes IPO by March 2011. Available: http://www.reuters.com/article/idUSTRE6630VV20100704. Last Accessed November 28, 2010. AME Info. (2008). Saudi Arabian Airlines sets privatisation strategy. Available: http://www.ameinfo.com/163992.html. Last accessed November 29, 2010. Center for Asia Pacific Aviation. (2010). Saudi Arabian aviation update: Privatisation of Saudi Arabian progressing, LCCs & airports expanding. Available: http://www.centreforaviation.com/news/2010/05/31/saudi-arabian-aviation-update-privatisation-of-saudi-arabian-progressing-lccs--airports-expanding/page1. Last accessed November 29, 2010. CH2M Hill, Inc. (2001). Public involvement-- making it work: highlights report. American Water Works Association. 1 - 145. Chinyio, E. (2010). 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(2006) Doing business with Saudi Arabia (3rd Ed.). GMB Publishing Ltd. Uk. 1 – 623. UBM Aviation. (2010). Calyon and Morgan Stanley to advise Saudi Arabian Airlines on privatisation. Available: http://www.ubmaviationnews.com/News/Today-s-News/Finance/Calyon-and-Morgan-Stanley-to-advise-Saudi-Arabian-Airlines-on-privatisation. Last accessed November 29, 2010. Read More