This case is written in close collaboration with Corné Klaassen and Richard van der Laan. LINKIT is very grateful for their contribution.

We’re supporting Air France-KLM (AFKL) implement the newest iteration of IFRS, the International Financial Reporting Standards. Specifically, we’re helping them comply with IFRS-16 leases which will put lease contracts on-balance. The project entails the development of an AFKL lease contract management platform.

WHY IS THIS IMPORTANT TO THE CLIENT?
Joining us for this piece is Richard van der Laan, Director of Accounting & Reporting at KLM: “Seeing as we lease 40% of our fleet of aircraft, the new standard on leases affects us quite strongly, yes.”

AFKL has over 3,000 lease contracts altogether in the group, many of those non-fleet related such as ground vehicles and real estate. Indeed, leasing is a big deal to AFKL. It decided to early-adopt the new standard in order to combine with the introduction of other IFRS standards. Compliance with IFRS is now a goal for January 1, 2018, rather than 2019 when the standard officially comes into force.

OK – IT’S A BIG DEAL. WHAT’S THE CHALLENGE?
“The challenges are many. First, the software must be able to manage thousands of contracts at multiple levels – from the highest-level frame-agreement to the lowest level of individual asset. Then we need contract events triggered for contract terminations, periodic price changes, contract extensions, rent free periods, discounts, and much, much more.

The complexity continues, says Richard. “This new solution is being implemented group-wide, which is a first. However, Air France and KLM group consist of many separate entities and administrations. The contract tool should therefore be able to cover multiple administrations worldwide. “

“But the greatest challenge – I think – is the fact that IFRS 16 is still brand new. Few people are experienced in it, few software adaptations and arrangements have been made yet. We’re leading the pack here and we’re pioneering as we go in many respects.”

WHICH TECHNOLOGIES ARE INVOLVED?
Richard: “We chose to adopt software developer Nakisa’s SLAN platform (SAP Lease Administration by Nakisa), to automate the recalculation of debt based on fluctuating parameters. Real estate rents, for example: they evolve annually according to various indices. So, we had to find a system that could automatically change the valuation of our debt by taking in the new data from these different indices. Also, SLAN is SAP-oriented, as is our own backend.”

ANY OTHER TECH?
The technical requirements include a Linux-based application architecture with a SAP HANA DB, Single Sign On using SAML2 and ElasticSearch with SSL security layer. Richard grins: “Nice little detail here: for ElasticSearch we work with a different security package than Nakisa. They use X-Pack whereas Air France-KLM uses SearchGuard. This complicated the installation and certification as well, but we have that one solved now.”

WHO’S ON THE TEAM?
“We’re working with the cooperation of a multi-country, multi-functional internal team with the support of external specialists. We also have several auditors proactively involved to get clarity and agreement on the parts where there’s room for interpretation. We’ve drafted position papers to achieve that clarity, but with different auditors it is not always easy to find agreement.

WHEN DID LINKIT COME ON BOARD?
“In Summer of 2017 we decided to scale up the project and get some additional hands-on experienced on SAP, software development and testing. That’s where LINKIT came in.”

WHAT’S IT LIKE, WORKING WITH LINKIT?
Richard: “What I’ve enjoyed a lot so far is that LINKIT quickly understands what it is we need to have done, and that they don’t just ask the first guy with his hands free to go do it. Instead, they take care to select people that fit – not just fit the job, but also fit with our organisation and our culture.

“Another thing I like about them so far is that they know how to keep the peace. Working with freelancers can be a hassle at times. But when I hire someone through LINKIT and an issue arises, LINKIT simply deals with the problem, silently and adequately. They bring peace of mind.”

Coming in from LINKIT, project manager Corné Klaassen was requested to manage on a day by day basis the co-building of the software at AFKL and Nakisa from then on. He smiles apologetically: “Complexity is exceedingly high, so this is a challenging job to say the least. Almost all tooling is new. Though we planned everything to great detail, things just don’t play along as often as we’d like.

“Still, with the pressure of a go-live date set to January 2018 there came a point where there was no longer room for further delays. Managing systems configuration is a crazy job. New and improved versions of Nakisa’s SLAN came in regularly, but that’s not necessarily a good thing: you need to make sure that everything still works as designed with every version.

“The last new build that met all critical Go-Live requirements came out just before Christmas of 2017. Talk about ’just in time’!”

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