Photo of Adam Ben Boukadida and Ricky Thirion, Etihad Airways.

Our Top Treasury Team accolade in 2016 goes to Etihad Airways’ who also shone in the Best Cash Management and Best Financing Solution categories. Under the leadership of Ricky Thirion, Group Treasurer and Deputy Treasurer Adam Ben Boukadida, the company has delivered a multi-disciplined program covering payment processing, liquidity management, collections and supply chain finance ahead of a scheduled change to the ERP platform in H216. This was a cross-functional team effort involving treasury, finance and IT.

The challenge

Etihad Airways operates 17 onshore subsidiaries which constitute both 100%-owned entities and those where the holding is less than 100%. During 2015, the company commenced a project to centralise its treasury operations for all its onshore operations in the UAE. As part of this project and during the second half of 2015, Etihad Airways moved to a new centralised treasury and risk management system, and during 2016 this will be followed with a change to a new, single group ERP.

Etihad’s Global Cash Management RFP

In preparation for these changes, the airline issued its first global cash management RFP in June 2015, with several objectives which included:

• Streamlining of bank relationships.
• Rationalising bank accounts.
• Optimising cash balances.
• Centralising payment processing with greater STP.
• Improving reporting and reconciliation.
• Improving commercial terms.

The RFP was run through Etihad’s procurement team, working closely with treasury and other departments both in the UAE and internationally. They pulled together a strong deal team and undertook the task of producing and releasing a comprehensive RFP, followed by a detailed evaluation, review and selection process of the banks, using a scorecard methodology.

During a six-month period, the participating banks were asked to present their capabilities in response to the RFP. This included a full-day presentation and Q&A session. Following this, the banks were further shortlisted with additional discussions and negotiations taking place to allow the selection to be confirmed in January 2016.

Adam Ben Boukadida, Deputy Treasurer, Etihad Airways, recalls: “Apart from the identified objectives, the key criterion for us in awarding the mandate to the final selected banks was to ensure a long-term partnership that will drive greater efficiencies in line with the treasury transformation journey. This in turn will allow us to maximise productivity of our people, get the best out of available systems and technology and use best practice models that are seen within other established leading global companies.”

Ahead of the global cash management RFP, Etihad worked closely with its existing banks to clean up a number of functions and processes. The banks also assisted Etihad in developing the centralised treasury model that delivered improved automation, with greater control residing at the central/group treasury, while adequate and appropriate business access remained in place.

As the ERP is scheduled to change during the second half of 2016, the first step in the transformation journey was to improve centralised access and control of accounts and working capital, while still operating on multiple ERP platforms across various subsidiaries. In the absence of a single instance ERP, it was identified that for the interim, this access and control needed to be managed over its bank’s online front-end platform. Between June 2015 and September 2015, National Bank of Abu Dhabi (NBAD) worked with the Etihad treasury team to:

• Centralise a number of functions to improve control and access to surplus funds across the group.
• Centralise payments management while ensuring adequate local business access for processing and reporting.
• Reduce overdraft facilities and provide quicker access to surplus funds.
• Enhance yields on the surplus balances, through an interest optimisation liquidity structure.

Treasury initiatives

As part of the treasury transformation agenda, and as indicated above, Etihad identified a number of opportunities to improve working capital efficiency. In some cases, parallel work streams took place to deliver benefits to the company.

Some of the work streams prior to the RFP that NBAD and Citi participated in included:

• Establishing a treasury view of central cash and working capital for 17 entities over a banking platform with adequate controls for payments management.
• Improving access to and return on surplus funds, through an interest optimisation notional aggregation pool.
• Enhancing the retail collections management processes and techniques from 26 ticketing outlets across the country.
• Supporting Etihad’s suppliers to accelerate their cash flow and enhance their liquidity through a supply chain finance programme.

NBAD and Citibank worked with Etihad on all fronts and aided the company’s project teams to identify, build and deliver appropriate solutions that enhanced business efficiencies ahead of its global cash management RFP.

The solution

To deliver the appropriate solution meant that a single channel capability was not adequate. This was because Etihad’s business structure included the parent, 100% subsidiaries and partially-owned subsidiaries. The ideal solution would allow varying payment processing models with single access for treasury to approve files and transactions. The final model was built with interfaces including:

• SWIFT (Fin and FileAct).
• A host-to-host channel with auto file uploads that is supported with a front-end platform for approvers in group treasury to authorise payment files and transactions.
• An online electronic portal for single payment instructions to be created and transmitted at a subsidiary level where some payments are approved within the business and others are at treasury (this was also managed via the front-end platform).

Payment processing model

A flexible payment processing model was proposed with options for connectivity with NBAD through various electronic banking channels with a single front-end platform with approval matrices in place, as required by Etihad.

Liquidity management solution

A liquidity management solution to control the use of funds at treasury was put in place, where surplus funds in the parent entity’s collection accounts over various business lines sweep to a treasury holding call account, and an interest optimisation structure applies (yield enhancement) through tiered interest rates based on three threshold values.

Cash collections

To improve the cash conversion cycle for cash and cheque-based ticket sales conducted at Etihad’s 26 retail outlets in the UAE, an RFP was issued asking for an improved model to manage the collections and reconciliation management processes for such sales.

Here too, Etihad clearly identified that improvements were necessary not only in the cash collection process but also in the receivables reporting and access to funds at group treasury. The RFP called for banks to deliver cash deposit machines which allowed the capture of booking references as well as sales-agent codes. This ensures reconciliation of ticketing sales proceeds as well as providing reporting of individual sales-agents collections.

The final solution was delivered by NBAD and provided cash handling services under a bilateral agreement, with the bank contracting certain services to a third-party provider. Apart from the necessary reporting explained above, the service includes the installation of cash deposit machines at select and pre-agreed locations in the UAE by the bank, access to same-day value of funds deposited in the machines, and Etihad branding in accordance with the company’s brand and marketing guidelines. This service is presently under implementation with a pilot machine installed at one location in Abu Dhabi.

Supply chain finance solution

Etihad is one of the first Middle Eastern companies to implement aglobal supply chain finance (SCF) solution to support its supply chain. Etihad, through a rigorous due diligence process, selected two banks to operate the programme.

NBAD has been selected as the preferred bank to offer a SCF solution for suppliers in the MENA region. Global suppliers are supported by Citi. The SCF solution is fully complementary to Etihad’s ERP system without the need for any manual intervention for Etihad or its suppliers.

Through this programme, Etihad aims to support its suppliers in getting them an accelerated cash flow and enhance its liquidity. Suppliers also benefit by having access to funding at preferential interest rates, based on Etihad’s strong credit rating.

Boukadida explains: “For us, this is all about adding value to our business.” This is demonstrated as follows:

• Understanding the needs of internal stakeholders.
• Appointing dedicated project managers for each key activity with sponsorship of senior management.
• Providing project teams with the tools and authority to carry out their tasks.
• Planning a phased approach, taking in to account existing business models and scheduled changes to systems, technology and processes.
• Maintaining flexibility to ensure best in class capabilities are adopted in the business.
• Negotiating for the benefit of the organisation.
• Replicating the model across its business and geographies.

I think the most important thing is the excellent recognition that we get. It validates the work that we’ve done as a team, not just to us but to our senior management and to our board and our shareholders. Coming from an organisation like Treasury Today, which is obviously world class and global, just adds so much more to that validation.

Ricky Thirion, Group Treasurer, Etihad Airways

Best practice and innovation

From a treasury management perspective, Etihad Airways has led the way in identifying its own needs, ensuring clear objectives which improve business processes and enhance controls while reducing risk. Key to its success in delivering on these objectives is the well-planned and project-managed approach taken, with clear timelines and accountability for delivery.

In addition, the senior management support and sponsorship that is clearly in place has allowed for all escalations and hurdles to be dealt with quickly and efficiently. Management representation on project steering and governance committees has been a positive contributor with individuals actively participating and taking on responsibility with purpose.

As a function, the treasury team is demanding of its banks and other suppliers, but it is fair and reasonable with expectations. Their manner of operating as a team drives camaraderie between all parties, and that improves the certainty of success.

Key takeaways

The Etihad Group Treasury team brings value to its internal stakeholders through its understanding of inter-departmental and finance needs. They conducted the cash management RFP and selection process using best practice models with senior management support. The implementation has been phased and project-managed efficiently and in a collaborative manner with the banks and service providers. A substantial differentiator in its method was including objectives around replication of ideas and successes as well as delivering to the organisation not just treasury.

In addition, the team worked with the chosen banks to challenge them to improve their own capabilities which in turn has enhanced the banks’ wider regional offering in the Middle East. The Etihad team’s approach to project managing the requirements was inclusive and transparent.

Participation on the project included senior stakeholders from across treasury, finance and IT functions, impressing the banks, as well as our judges, with their dedication and commitment.