MBA 620 Module 4 Acquisition Risk Assessment example

What Could Go Wrong: A Risk Assessment of Two Regional Airline Acquisition Options

[Student Name]

Southern New Hampshire University

MBA 620: Measuring Success in an Organization

Module Four Assignment

[Instructor Name]

[Date]

The organization, setting and figures below are a composite written as a model document. No real employer, client, colleague or patient is described.

What Could Go Wrong: A Risk Assessment of Two Regional Airline Acquisition Options

Approach

Meridian Airways, the composite carrier in this project, has evaluated the performance of two acquisition targets, Coastline Air and Prairie Connect. Performance tells what each airline has achieved; risk assessment asks what could prevent the acquisition from delivering its purpose. This assessment follows the enterprise risk management principle of linking risk to strategy and performance (Committee of Sponsoring Organizations of the Treadway Commission [COSO], 2017). Each risk is scored from 1 to 5 for likelihood and for impact, and the product gives a score from 1 to 25; scores of 15 or more require an active response before any deal proceeds.

Risk Register

Table 1 scores eight risks under each target.

Table 1

Acquisition Risk Register With Likelihood and Impact Scores

Note. Composite assessments by the acquisition team. Scores of 15 or more require active mitigation.

Comparing the Risk Profiles

Coastline carries more total risk, with a combined score of 95 against Prairie's 76, and it has two risks above the action threshold: labor integration, scored 20, and balance sheet strain, scored 16. The labor risk is the most serious in the register. Coastline's pilots and mechanics are paid less than Meridian's and have higher turnover, and combining seniority lists has historically been among the most contentious parts of airline mergers; raising pay would erode the cost advantage that made Coastline attractive. Prairie's highest risks are labor integration, scored 15, and fleet replacement, scored 16. Its fleet will need renewal within a few years, and aircraft prices and delivery slots are uncertain. Prairie also has more route overlap with Meridian in the Midwest, which raises the chance of regulatory scrutiny; research on past airline mergers found that consolidation raised fares on affected routes (Kim & Singal, 1993), which is why regulators examine overlap closely. Coastline's risks attack the reasons for buying it; Prairie's risks are costs Meridian can see and plan for.

Responses and Owners

Each high-scoring risk has a response and an owner. For labor integration under either target, the chief human resources officer would negotiate a framework agreement with unions before closing, covering seniority integration by a neutral arbitrator and a pay transition schedule; if unions will not agree to a framework, the deal price should reflect the risk. For balance sheet strain with Coastline, the chief financial officer would require a financing structure that keeps Meridian's debt below its covenant limits, possibly paying partly in shares. For fleet replacement with Prairie, the fleet planning team would obtain firm aircraft quotes and delivery slots during due diligence and reduce the offer by the expected cost. For regulatory risk, legal counsel would identify overlapping routes early and prepare to divest slots if required. Reliability during integration would be protected by keeping the target's operations separate for the first year.

Deal-Breakers

Some findings should end a deal regardless of other merits. For Coastline, a failure to reach a labor framework agreement, or a financing structure that would breach Meridian's debt covenants, would be disqualifying. For Prairie, aircraft replacement costs more than 25 percent above estimate, or a regulatory requirement to surrender more than a third of overlapping routes, would remove most of the strategic value. Setting these thresholds now, before negotiations build momentum, protects the decision from being carried along by commitment already made.

Risks That Affect Both Options

Some risks do not distinguish between the targets but still shape the decision. Fuel prices can swing sharply within a year, and an integration period is the worst time to absorb a shock, since management attention is divided and costs are temporarily higher. A demand shock, such as a recession that cuts business travel, would hurt Prairie's business routes more, while a drop in leisure travel would hurt Coastline more; neither option is a hedge against the broader economy. Cybersecurity and systems integration is another shared risk. Combining reservation, crew scheduling and maintenance systems is technically complex, and failures in these systems have caused widespread disruption at airlines in the past. Finally, both deals carry key-person risk: the target's chief operating officer and senior maintenance managers hold knowledge that could leave with them. These risks argue for keeping the acquired airline's operating systems separate for at least a year, securing retention agreements for key leaders before closing, and holding an integration reserve in the budget rather than assuming synergies begin immediately.

Guarding Against Optimistic Forecasts

Acquisition teams are prone to a particular bias. Kahneman and Lovallo (1993) described how decision makers take an inside view of their own project, building forecasts from its specific plan while neglecting the outcomes of similar past cases, which leads to bold forecasts of success. In acquisitions this shows up as generous synergy estimates and modest integration budgets. To counter it, Meridian should compare its integration cost and timeline estimates with those of past airline mergers, assign a team member to argue against the deal at each review, and treat synergy estimates as ranges rather than single figures. The risk scores themselves should be revisited as due diligence reveals new information, since a register is a working tool rather than a one-time judgment (International Organization for Standardization [ISO], 2018).

Monitoring Risk After a Decision

Risk management does not end at signing. If Meridian proceeds, the risk register should become part of the integration dashboard, reviewed monthly by the integration steering committee, with leading indicators for each major risk: grievance filings and turnover for labor risk, debt ratios against covenants for financial risk, on-time performance for reliability risk and actual versus planned integration spending. Linking risk indicators to the balanced scorecard used to select the target keeps the same measures in view from decision through integration, which is the purpose of integrating risk with performance management.

References

Committee of Sponsoring Organizations of the Treadway Commission. (2017). Enterprise risk management: Integrating with strategy and performance. COSO.

International Organization for Standardization. (2018). Risk management: Guidelines (ISO Standard No. 31000:2018). ISO.

Kahneman, D., & Lovallo, D. (1993). Timid choices and bold forecasts: A cognitive perspective on risk taking. Management Science, 39(1), 17-31. https://doi.org/10.1287/mnsc.39.1.17

Kim, E. H., & Singal, V. (1993). Mergers and market power: Evidence from the airline industry. American Economic Review, 83(3), 549-569.