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Honeywell and Pakistan International Airlines Case Solution & Answer

Case Background

Pakistan International Airlines (PIA) is the national airline company of the Islamic Republic of Pakistan. Founded in 1954, the company operates both in passenger and cargo airline services, and is 57% state owned. The remaining 43% equity of the company is held by private investors in the country. However, the company’s fleet is not getting old, and the investment by the government in the fleet has been restricted by the International Monetary Fund (IMF).

However, to meet the quality requirements of the U.S. Federal Aviation Administration, in order to avoid losing its profitable operations in the United States of America, the company needs to retrofit its aircrafts for quieter engines and the usage of upgraded versions of avionics within a year.

In order to attain this objective, Pakistan International Airlines has been negotiating a contract with the Space And Avionics Control Group of Honeywell in the United States, to retrofit its aircrafts according to the safety mandates of U.S. Federal Aviation Administration. The agent of negotiations here is Ibrahim Makran Pvt. Ltd., a family owned and managed import and export trading house in Pakistan.

The management of SAC is concerned about the PIA management’s current demand of making payments in currently devaluing Pakistani currency. This is against the company’s policy and the management doesn’t want to pursue this due to currency risks involved in the transaction. However, not agreeing will result in the loss of the contract, which is currently necessary for the SAC management to meet the annual sales targets of the company, which otherwise will result in lost managerial benefits for the team of SAC. Therefore, the SAC management wants to consider all the three options for the company and make a relevant decision on the deal as soon as possible.

Problem Statement

The management of Space and Avionics Control Group (SAC) of Honeywell, Inc. (U.S.) is worried about its retrofit proposal contract with the Pakistan International Airlines. The proposal has been stuck for several months and is currently under negotiations. The management of PIA wants to make payments in Pakistan Rupees, which is against the corporate policy of the company. However, if the demand is not well-entertained, then the deal worth $23.7 million will end unsuccessfully.

The national airline of Islamic Republic of Pakistan is struck by the lack of investment problems due to a restriction placed by the International Monetary Fund (IMF) on the country’s government spending. The airline was founded in 1954, and its fleet is turning old and obsolete. Therefore, not making an investment in the company’s aircraft quality and up gradation within a year is likely to result in the company’s loss of operations in the profitable market of USA, due to the restrictions put on the company’s operations by the U.S. Federal Aviation Administration.

The management of Honeywell SAC has to decide whether it should entertain the demands of PIA, and in which way it should deal with the matters in the contract. It has to determine what will be the value of the deal to the company………………..

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