Cash Pooling Takes Flight at a Midsize Aviation Business

The airline industry is complex, with many different providers working together to ensure the smooth movement of passengers, planes, and goods across the globe. Every airline requires a fleet of airplanes—each worth tens of millions of dollars—as a necessary component of day-to-day operations. Goshawk, as an aircraft-leasing company, helps airlines reduce the capital burden of acquiring those assets.

“Consider a bank that is lending an airline $50 million to buy an aircraft,” says Damian Howley, head of treasury for Goshawk. “That creates a $50 million exposure to that one company and one aircraft, and the interest charges imposed are going to reflect that risk. Alternatively, if a leasing company like Goshawk borrows $50 million, the bank’s credit exposure is diversified across a range of airlines and aircraft around the world. There are exceptions, but typically this risk diversification allows Goshawk to raise debt at a lower cost than most airlines, so we can offer them attractive financing on the aircraft they need.”

A leasing arrangement with a company such as Goshawk can also increase the airline’s business agility. “Suppose an airline buys an aircraft to fly between London and Paris,” Howley says. “If something changes and that route no longer makes sense for some reason, the airline is stuck with the aircraft and no route to fly it on. However, with leasing, the airline can return the aircraft at the end of its lease. This gives airlines more flexibility in managing their fleets over a long-term period.”

Since its founding in Dublin in 2013, Goshawk has focused on building a high-quality portfolio of modern aircraft that are placed on long leases (usually in the seven- to 10-year range) to airlines around the world. With a fleet of 222 aircraft, the company has grown rapidly over its nine years—it now ranks among the top-10 aircraft-leasing businesses in the world.

Goshawk’s corporate structure includes separate entities for each aircraft the company owns. Previously, funds would move between the individual aircraft entities and corporate bank accounts via intercompany funds transfers. This would entail several manual steps, from gathering information about accounts’ cash balances to initiating a wire transfer.

Each aircraft’s business entity receives rent from the airline monthly. To allow for delays in payment, Goshawk would not schedule intercompany loan payments until a number of days after the aircraft’s rent due date. Coordinating the various intercompany transactions, across the company’s 200-plus aircraft entities, was taking a significant amount of time for the treasury team.

“We would have a considerable number of manual transfers on a daily basis,” Howley says. “We wanted to earn interest on the excess cash we were holding for the period between rent coming in and intercompany debt being serviced, but we also wanted to automate funds transfers as much as possible.”

Goshawk was already using the IT2 treasury management system from ION Treasury. In order to streamline intercompany cash flows, Goshawk built a cash pooling structure within the treasury management system. In addition to minimizing the manual effort required for routine cash sweeps, the company aimed to enhance its control and visibility over group cash. Treasury team member Miriam Brosnan led the initiative alongside colleagues from the finance, tax, and legal divisions. “With the team’s input and agreement, we built a cash pool structure incorporating a significant number of our entities,” she explains.

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From a systems perspective, the treasury team deployed the cash concentration module within their treasury management system and created a new notional account for each cash pool participant. This enabled Goshawk to settle the entities’ notional cash positions within the treasury management system rather than by initiating physical cash wires.

Funds received into a cash pool participant’s bank account can be swept to the cash pool header account using the treasury management system’s cash concentration functionality. The treasury team also developed a cash book import interface to support the monthly import of payments across the notional accounts.

From a corporate perspective, this initiative significantly improved overall cash management at Goshawk, enhancing the company’s ability to manage surplus funds and to monitor upcoming funding requirements with more accurate cash forecasting.

“The pooling structure frees up our cash more quickly, so we have less cash sitting in our operating entity accounts and more in the interest-bearing header account,” Howley explains. “Our new pooling structure also gives us better visibility into every entity’s cash position so that we can make better-informed decisions about capital investments and paying down debt.”