Puerto Rican Electric Power Authority to cut consulting spend by 35 percent

20 August 2018 Consultancy.lat

The Puerto Rican Electric Power Authority (PREPA or Autoridad de Energía Eléctrica in Spanish) have cut their consulting spend by up to 35 percent. The savings will amount to an approximate $26 million and will be shaved off the top of multiple existing contracts in a bid to invert the transformation of the public corporation. 

The Puerto Rican government owned PREPA has made a plan to reduce its consulting cost by removing overlaps in its total spend. The move comes just weeks after the new executive director José Ortiz took the reins of the struggling public corporation in July this year. Ortiz is an engineer and has been a public servant under multiple governments and so was tasked with reforming PREPA. 

However, he has been put in charge of PREPA at a time when the island is beyond financial hardship. After officially declaring themselves broke by invoking the PROMESA’s Title III bankruptcy process in May last year with a regional debt of roughly $70 billion, Puerto Rico was hit by a hurricane of epic proportions. The storm threw the island into a world of devastation that in turn meant the economic situation would get worse before it began to get better.

Today the Commonwealth’s economy is slightly recovering but Hurricane Maria’s effect on the public electric utility service pushed it over the brink. What was already considered an inefficient and costly organization according to CNBC, “which had failed to invest in maintenance and resiliency and is saddled with unsustainable debt”, completely failed when the storm struck. 

Aided by federal disaster relief funds, Puerto Rico currently has some room to breathe, and strategize. However, the accusations of mismanagement continued to fly around with PREPA officials accepting bribes to restore power to exotic clubs before the general public, and, according to a local source, it has been alleged that some officials even powered their own homes before “critical locations such as San Juan’s Rio Piedras Medical Center and the Luis Munoz Marin International Airport.”

Puerto Rican Electric Power Authority to cut consulting spend by 35 percent

As part of Ortiz’s mandate to restructure, cut expenditure and no doubt cancel out corruption, he and Governor Ricardo Rosselló Nevares announced this week that the agency would cut $26 million in contracts, including those to Filsinger Energy Partners, Ankura Consulting Group and two law firms. Instead, the public corporation would consolidate those tasks and take on some of their functions internally. 

In an interview with Puerto Rican newspaper ‘El Nuevo Día’, Rosselló Nevares and Ortiz indicated that the savings achieved will be ‘invested’ in the transformation of PREPA. The largest cuts were from the restructuring advisory firm which will now take on a more strategic role, according to Ortiz. The saving alone from this one contract adds up to $12.9 million, which was shaved off an original bill of $24 million. 

Ortiz focused on this contract because it was not fiscally responsible according to the PREPA plan and that the contract contradicted the direction of the public entity. “I had a role in pushing projects, but that is going to have people from the Authority now, as it had to be from the beginning. Filsinger has a lot of value for the Authority, but as a strategist… giving guidelines and terms of the steps that must be taken,” said Ortiz.

The contract for Ankura Consulting, which was hired in June last year to offer financial advice in relation to debt restructuring under PROMESA Title III, was reduced by $3.8 million, from $11.4 million to $7.6 million.

“We focused on where there was an overlap of functions to leave a single person in charge, and we began to distribute the load. There was an overlap of many law firms and financial advisers, who were doing, in many cases, similar things. We eliminated that,” said Ortiz. “There were also functions that, at this stage, can be done by employees of the Authority with the salaries that are earned today. We started a transition to our team.” 

“The request was that we could find tangible efficiencies that could result in savings... that the people could measure them, and lead us into the broader process of transformation for the future," Rosselló Nevares said. According to Ortiz and Rosselló Nevares, the savings will go towards coving PREPA’s day-to-day expenses and will see the entity’s reform advanced. 

Avianca Brasil needs major restructuring effort to stay flying

18 February 2019 Consultancy.lat

Brazilian airline Avianca Brasil will need to sell 14 of its 50 aircraft and improve its operational efficiency, if it wants to continue flying while being able to repay its creditors, according to an analysis by Galeazzi & Associados. 

The São Paulo based management consultancy was hired by Avianca Brasil in December shortly after the airline filed for bankruptcy protection. Consultants of the firm have since assessed the financial performance of the company and crafted restructuring plans in a bid to turn Avianca’s fortunes. Galeazzi & Associados is also exploring future options for the airline, which include finding a partner, a buyer, or even filing for bankruptcy.

Following a number of payment defaults, Avianca’s main creditors, aircraft lessors Aircastle and General Electric Capital Aviation Services, sounded the alarm bells on the company’s financial position. The two creditors have in the meantime been seeking to repossess their planes, however, their attempts have so far been successfully fended off by Avianca, allowing the company to maintain its current flight schedule. According to Reuters, consultants from Galeazzi & Associados have visited the carrier’s creditors to discuss scenario’s and potential measures. Concrete results have though not materialised.Avianca Brasil needs restructuring effort to stay flying

In the background, Avianca is negotiating with Elliott Management, a hedge fund, about a 250 million real ($69 million) loan, sources close to the matter disclosed. As part of bankruptcy protection process, any investment would need to happen within the regulatory guidelines, likely in the form of debtor-in-possession financing. Brazil’s fourth-largest airline plans to ask the judge overseeing its bankruptcy for more time to reach a final deal, pointing at the progressive loan talks held with Elliott Management. 

In the analysis by Galeazzi & Associados, the advisors conclude that a major restructuring effort is required for Avianca Brasil to continue its operations. Around 14 of the 50 aircraft would need to be disposed, in order to optimise the capacity usage of the fleet. As per the plan, 36 aircraft would combined be capable of achieving 235 flights per day. The sale of the aircraft would provide a needed buffer to repay creditors.

On top of this, the airline will need to reduce its operational expenses and attract investments to the tune of $75 million to stay afloat.

Last year, another Latin American airline, Aerolíneas Argentina called in the help of an external consulting firm to reshape its loyalty program.