This transaction is the first supply chain finance programme in the airline industry in EMEA. The solution is fully automated from end-toend for Etihad Airways, its suppliers and the chosen bank and offers complete flexibility.
Photo of David Aldred, Citi and Adam Boukadida, Etihad Airways.
Etihad Airways is the national airline of the United Arab Emirates (UAE) and one of the fastest growing airlines in the world, carrying 14.8 million passengers on its fleet of 110 aircraft in 2014. Although the airline has been established for just 11 years, it has rapidly gained a reputation for operational and treasury excellence. A recent focus of the treasury team has been to improve cash visibility and work on various working capital initiatives.
in partnership with
In 2014, Etihad Airways sought to support its global supply chain by offering its suppliers the option to receive early payments related to their receivables and by making finance available to them at a lower cost than they would usually be able to borrow at themselves. By doing so, Etihad Airways continued to deepen its relationship with its suppliers as part of efforts to strengthen its supply chain. The airline also hoped to use the implementation of a SCF programme as a way to achieve process benefits, such as automation of invoices, and to improve cash flow and working capital.
Finding the right bank to create, implement and operate a pilot for the solution was critical, given that SCF is relatively new in the Middle East and no airline outside the US had introduced a programme at that time. Etihad Airways conducted a lengthy analysis process, exploring various opportunities with key transactional banking partners. The airline decided to work with Citi for the SCF programme. Etihad Airways and Citi have enjoyed a strong strategic relationship for many years and were able to demonstrate their strength in the international SCF marketplace. Citi also provides cash and banking services to parts of Etihad Airways’ global network, which meant that the airline had to undertake only minor system integration in order to implement a SCF programme. This was an important factor since Etihad Airways’ group treasury is also heavily involved in numerous other initiatives, such as replacing the company’s global centralised treasury and risk management infrastructure.
The SCF solution leverages Etihad Airways’ solid financial credentials and Citi’s role as an intermediary to provide finance to the company’s suppliers at a cost lower than they would usually be able to achieve. The solution is fully automated from end-to-end for Etihad Airways, its suppliers and Citi, and offers complete flexibility. Etihad Airways approves the supplier invoice and electronically instructs the bank to pay the supplier on the maturity date. The supplier is then notified that the invoice has been approved via email – this is also shown on the Citi portal. Suppliers can elect to receive payment immediately for individual invoices or can opt to be paid early for all invoices. Each element of the programme, including discount rates, payment dates and other information is transparent and accessible online. Etihad Airways can easily monitor the programme using a dedicated SCF platform with host-to-host connectivity.
Citi worked with Etihad Airways to analyse its supplier base to identify which companies would benefit most from the SCF programme and which would deliver the greatest benefits to Etihad Airways. It was discovered that some suppliers were unfamiliar with SCF so an important part of the solution was educating suppliers about the practicalities of the programme and its benefits. Comprehensive on-boarding support was also provided for suppliers.
To implement the solution, Etihad Airways needed to make changes to its treasury management system and invoice approval processes. Etihad Airways is a rapidly growing company and limited additional treasury resources were available to implement the SCF solution. However, clear communication between Etihad Airways and Citi, and a well-defined timeline, ensured that the project was implemented on time with no impact to business as usual.
Best practice and innovation:
Etihad Airways’ SCF programme is one of the first in the UAE and the Middle East, and is the first for an airline outside the US. Given its ground-breaking nature – and the fact that Etihad Airways is just 11 years old – the scale of the solution, which spans the US, Europe, Asia and the Middle East, is impressive.
Most SCF solutions focus on the relationship benefits of providing lower cost financing, the potential process efficiencies, or the cash and working capital benefits. Etihad Airways’ solution comprehensively addresses all three areas and has delivered convincing results. Etihad Airways’ suppliers have welcomed the opportunity to gain access to early payment and low cost funding and appreciate the company’s efforts to support them and deepen supplier relationships. By fully automating the solution – and launching with a ‘big bang’ approach – Etihad Airways has streamlined payments and benefited from considerable improvements in working capital.