Decentralised Accounting: Bank Relationship Structure - CitiGroup

From take-off at an entirely decentralised accounting and bank relationship structure to the destination of a harmonised global structure.

A SHARED SERVICE CENTRE CASE STUDY IN THE AVIATION INDUSTRY

Airlines have to overhaul all their aircraft in different intervals to ensure safe and efficient transportation of passengers or cargo. A so-called 'D-Check' is the overall dissembling of the aircraft. The engineers review each single screw, take it out if redundant (every single gram less saves 10 times its own weight on kerosene), and replace those items which have reached the end of their duration and keep all good parts.

With the skills to manage a complex task like an aircraft D-Check, Lufthansa senior management rolled out the 'D-Check Project' to review the administrative processes. It focused for all divisions and teams within the group, one of which was Finance and Accounting (F&A).

Immediate ideas were born by project teams, reviewed and finally decided. Was a process in F&A smooth enough to keep it unchanged, to replace (restructure) or even to remove it completely.

SHARED SERVICE CENTRE FEASIBILITY

Obviously the question was asked of whether a Shared Service Centre (SSC) would be feasible. Airlines do have very specific requirements, different from service or production companies. Passenger and cargo businesses are not obliged to build up local legal entities in foreign countries and are therefore allowed to keep their books worldwide according to German rules and regulations. The special set-up turned out to be a big advantage for implementing an SSC as all accounting units used the same ERP system with the same release and the same chart of accounts – an otherwise quite time-consuming and difficult hurdle for other corporates.

After the decision to set up an implementation project, one of the first decisions the project had to take was to define the process cut, meaning which processes should be centralised and which would have to remain local. In the end, the complete purchase-to-pay process was moved to the SSC as well as the airline specific process of order-to-cash, which involves so-called Bank Settlement Plans (BSP) and ticket audits. The economies of scale were quite impressive.

Similar to other corporates, Lufthansa requires banking services in the countries in which it is operating. Historically, accounts have been opened with local banks. Those banks were chosen for their location at or close to airports where it was convenient to deposit the high cash and check volumes. Over the years, Lufthansa maintained over 300 different bank relationships across the world. For the senior management, it was shocking to see how much liquidity was held within these local banks - some of them were even below investment grade.

The project sub-team for the banking process performed due diligence in more than 100 countries and checked afterwards with Lufthansa's core bank partners if they could offer local bank services. Lufthansa started to roll out zero-balancing structures for all countries to ensure that the liquidity could be more efficiently used for the group. In some instances it led to the well-known conflict that the local branch is always requested to reduce local administration costs like bank fees and commission, which were covered through the high surplus balances kept at the local bank accounts.

DECREASE THE NUMBER OF BANKS, STREAMLINE THE TECHNOLOGY ENVIRONMENT

Now, they are requested to sweep all balances to the parent. Banks now request clients to pay fees and commissions for the services, but Lufthansa had no budget for it. A very tricky task. With the support of Lufthansa's global relationship banks, it was possible to substantially decrease the number of banks, streamline the technology environment by the implementation of global electronic banking infrastructures and to receive competitive pricing, a bonus for the increased volumes.

With the globally harmonised landscape of Lufthansa's bank account structure and the more standardised method of payment processing, Lufthansa was also able to migrate these tasks to a centralised SSC.

Lufthansa set up three different airline accounting centres globally (Lufthansa's shared service centres) to cover all time zones in a reasonable time. The AACs enjoy broad responsibilities today and Lufthansa did a very good job in reassembling the F&A departments with meaningful process improvements and the resulting cost savings.

The subsequent projects still allow for an ongoing review and improvement of services. This long distance flight is approaching its first stopover, but the next take-off is already scheduled.