CASE REPORT

Hexcel Turnaround-2001 (A)

Group No.-B2
Core Problem:

To address the immediate cash shortfall of $66 million, expected due of $47 million in 2003 and
$234 million due in 2004.

Analysis of Sources of Problems and opportunities available:

Key issues
1. The business of Hexcel is primarily driven by military aerospace. With the recent twin tower
attack, the business seems to be at high risk.
2. Due to global downturn of electronics market leading to anticipated fall in company’s
revenues.
3. Cyclic demand in aircraft industry leading to uncertainty.
4. The business is highly leveraged with total leverage at 39.9 in the year 2000.
5. High dependency only on commercial aerospace and lack of diversity in customer base.
6. From the profile mentioned in Exhibit 6 it is apparent that David Berges was from a highly
operational background where as the company was looking for someone with operating
expertise and strategic bent to pave the way of growth forward

Opportunities

1. May tap other business areas such as private air jets, helicopter business, etc.
2. Reduce the number of direct labour
3. Sell some of the non-core assets
4. Sell electronics business
5. Focus on composite business and develop different market segments to maintain the
leadership position in the composite industry

Way Forward:

Way Forward Pros Cons

Debt restructuring and
refinancing
Sale of plants to finance short- 
term payment
Liquidation of the business
vertical which is the least
profitable
 Assets need not to be sold
on a war time basis as this
would fetch much lesser
price than the asset’s worth
 This approach could keep
the stakeholders and
employees calm and
prevent too much negative
PR
This approach could weed
away inefficient/loss
making assets and reduce
the overall expenses.
 The purchaser will have to
take on most of the
employees. This would
result in reduction of
Hexcel’s fixed costs.
 Lender would get better terms
since the firm’s rating has gone
down, and the original debt
remains the same.
 Risks and costs will increase.
 Selling assets is not good for
future of the core business.
 The funds brought by this
action would be less
 The impact of this action on
overall revenue in the future
would be enormous.
 The firm need on money is
immediate. The sale would
bring in much lesser price than
the worth.

Downsizing to cut fixed costs
 Selling would mean
reducing the future costs as
well.
 Since Hexcel is eliminating a
vertical that is bringing in
just 5% of revenue, it could
focus on the more
profitable ones.
 Money is saved  PR disaster. Very few people
immediately when there will believe that less human
are less people to pay, less talent would make the
resources costing the company better.
company money. More  Rehiring would consume more
funds could be used to time and money.
settle short term debt.
 Already company is
working with an excess
workforce.

If Hexcel wants to avoid bankruptcy and stay afloat, it can do so by combining 2 strategies. First, it
needs to get its debt restructured. The company has a history of paying back the debt and staying
faithful to its investors and creditors and this could help them good terms of repayment. Along with
this option, the firm could sell off of their least profit making vertical, i.e. the electronics department
which would experience a drop of 75% revenue in the coming year.