Partnership challenges

This is the seventh of a series of articles which focus on managerial challenges in the aviation and aerospace industries. The following brief scenario / case study which is meant to illustrate the problems. Part 1 will outline the problem; Part 2 will discuss the issues and possible options; Part 3 discusses the short term and long-term actions needed to make the organization more resilient

Part 1 – The scenario

As George the operations manager from Greenstar aviation watched his partner Justin storm out of the building in a fit of rage, he wondered how the partnership had become so dysfunctional.

Justin had stormed out when George and three of the other minor shareholders had indicated that they did not agree to go along with plan for expansion that Justin had been promoting. Justin had given the other partners an ultimatum either go forward with his expansion plan or he would resign from his role as President of the company.

Background

Greenstar Aviation was a small executive charter aviation company which had been established by four aviation professionals approximately 10 years previously. All four of the partners had previously worked together in the flight department of a regional forestry company. In an effort to shed some non core business expenses the forestry company had decided to shut down the flight department and contract out all flight operations. Justin, the company Chief pilot saw the shut down of the flight department as an opportunity. He had been the one who approached his co workers with the idea of taking over the flight department as a partnership. Most employees saw the venture as being too risky but three other employees agreed to become partners with Justin in this venture. They included George – pilot, Don – pilot, and Casey the chief engineer. Each of the partners agreed to invest into the venture, and received shares commensurate with the investment made by each. As a result, Justin and George ended up with equal ownership and of 33% each with Don and Casey sharing the remaining 33% equally.

Justin was also the partner who built the business plan which he presented to the CEO of the forestry company. The forestry company saw this as a viable option and entered into a contract with the newly formed Greenstar Aviation. The fleet at the time comprised an older Citation II and a newer Sovereign. The new aviation entrepreneurs entered into a vendor financed purchase contract with the forestry company for the two aircraft. This allowed the forestry company to move the aircraft from being a liability to being an asset on the balance sheet but also allowed the Greenstar to start up with very limited resources.

Over the years the company slowly grew to a fleet of 6 aircraft. Justin held the role of company president but also held onto the Chief pilot role. As time went on Justin consistently pushed for growth and expansion into other geographic areas. Greenstar had 4 aircraft based in their home base and had established another base in another city with the other 2 aircraft. Operations were running ok but the company had leveraged itself highly and the lease charges on the aircraft were becoming an issue. As a Canadian company most revenue coming in was in Canadian dollars but the leases were in US dollars and the Canadian currency had recently dropped.

Justin had recently come across an opportunity to take over the 4 aircraft flight department for another corporation and he had approached the other partners with a plan to go forward with this latest expansion. Justin saw growth as a means of moving the company forward and resolving the financial challenges, but the other partners were less convinced. The reality is that the last expansion had not gone smoothly. Setting up another base in another city would challenge Greenstar’s Operations, QA, and Maintenance structure. And the reality was that every time a difficult decision came up it seemed like Justin would be out flying. George had been approached by Don and Casey who indicated that they were not in favour of another expansion right now.

In an effort to try to resolve the problem George had called an informal shareholders meeting where the four partners could discuss the potential expansion opportunity. Unfortunately, Justin had made it clear at the start of the meeting that as the founder and president of the company it was his decision and if the proposed expansion was not approved “you can go ahead and find another president and another chief pilot because I will leave this company”.  The three remaining partners indicated that prior to any discussion regarding the expansion this ultimatum needed to be withdrawn. George tried to get Justin to withdraw the demand. But in the end Justin did not like having his initiative questioned and stormed out of the office in a fit of rage indicating that he was the reason that the company existed and that without him the company would not exist.
 
What would you do if you were in George’s shoes?
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When reviewing a scenario, we ask a few questions like: who are the players? What are the primary / secondary issues here? What could happen? And what are the possible solutions to the problem? Take some time to write down some of the challenges and ideas for correcting the challenges.

Part 2 – Problem Identification
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When reviewing a scenario, we ask a few questions like: who are the players?  What are the primary / secondary issues here – root causes? What could happen? And what are the possible solutions to the problem? (Not unlike doing a corrective action plan)

Players / Stakeholders; Justin – one of the partners, president, chief pilot, George - one of the partners, operations manager, Don - one of the partners, Casey - one of the partners and Chief engineer. The rest of the employees, lenders, customers, and other suppliers.

Primary / Secondary issues – root causes?

Partnerships are relationships between people – all relationships have challenges from time to time these can be caused by a number of issues such as:
Financial pressures
Perhaps a lack of a shared vision for the company
Different risk tolerances across the ownership group

What could possibly happen? What is at stake for the company and for the players?

In reviewing this case we could do a basic risk assessment using likelihood and severity as the two factors at play. In this case we have a possibility of a partnership breakup which could lead to the failure of the company as a worst-case scenario.  If Justin decides to stick to his guns and resign, the company would be without the president but would also be without the Chief pilot. This could lead the company having their operating certificate withdrawn

What could possibly happen? 

1. The unexpected loss of the company president could cause confusion among loyal staff members – this could lead to people not focusing on their job duties – ultimately leading to a potential safety hazard
2. Sudden departures of key people like the Chief pilot raise concerns with the regulator and with clients – do clients seek other service providers – leading to potential revenue issues.
3. The Chief pilot position would need to filled rapidly in order to stay in regulatory compliance

4.Increased scrutiny by lenders
5.A possible legal battle which destroys the company
 
What options exist?

1. Reach out to Justin and agree to his terms (the short-term solution)
2. Do nothing and hope that Justin will come to his senses
3. Hire a company lawyer and sue Justin the for his breaching fiduciary duty to the company
4. Find a replacement for the Chief Pilot position and enter into mediation with Justin to seek a mutually agreeable resolution

 
Part 3 Building a Solution
We have reviewed the scenario, identified the players, what is at stake, and proposed a couple possible options. Now what should partners do at this point / and in the long term to correct the current challenge?

Short term action

When an emergency pops up in an aircraft we are told to AVIATE, NAVIGATE, and then COMMUNICATE In the short term – keep your eyes on running the company don’t be distracted by the emotions associated with a partnership dispute.

• Identify who will fill the Chief pilot position on an interim or longer term and be ready to notify the regulator of your nominee if Justin actually resigns
• In a small company like Greenstar the rumor mill will be working at overtime – Remind everyone that safety is their primary concern and to focus safe operations.
• Proactive communications help to prevent the rumours from getting a foothold.
• Identity someone who could act as an intermediary to reach out to Justin
• Notify the corporate lawyer of the partnership dispute and seek advice (if the lawyer had been doing his job a partnership agreement would already exist)

Longer term corrective action

In reviewing this scenario, we see a situation which did not happen overnight and, in all reality, will not be solved easily. Building a small company requires a team that will work together. In the initial stages an idea, along with good intentions may be enough to move a partnership forward. As the emergent company grows in size and complexity good intentions prove to be inadequate when solving disagreements between partners. The resolution of this partnership dispute will require a dispassionate level headed approach that balances all the facts and can find a fair resolution. This is the work of a professional mediator.
Possible outcomes could be the normalization of the partnership and a getting back to business or it could result in a buy out and separation agreement. In this scenario it is possible that Justin comes back and indicates he wants to buy out the shares in the company or the remaining partners could enter into an agreement to buy out Justin’s shares. In either case it would be wise to bring in a professional who has experience negotiating such a separation agreement.
Regardless of who ends up in control of the organization remember that the ownership group is only one stakeholder and consideration must be given to ensure all relationships are maintained.

Summary

Building a new company is exciting, we enjoy working together to build something. That common goal is easy to identify and agreement is easily found as the group moves forward together. As time goes on the initial vision for the organization may shift or the reality of how difficult the goal is to achieve may set in. Building a company is tough work, when this reality sets in, what was once a shared vision can become a quagmire of conflict and emotion. Throw in some financial or family problems and the partnership can disintegrate. The reality is that partnerships are made up of people and people do have disputes from time to time. A wise group will ensure that a partnership agreement is established at the beginning of the partnership – when everyone is on the same page. This partnership agreement will help guide the rules of engagement when things are going smoothly but more importantly guide resolution of disputes in a fair and transparent manner if and when they go off the rails. After all nothing is forever and at one time or another every partner step away from the partnership eventually.