Abstract This case is based on a real situation and covers aspects of unethical decision-making practices in the airline industry. EastJet, an airline company based in Eastern Europe is a small regional air carrier, struggling to achieve profitability in a limited niche market. EastJet's executive team is expected to make significant cost cuts and show positive changes in the airline's financial situation. Newly appointed Onboard Services Manager Emma Banks joins the company and discovers unethical practices related to catering cost calculations and tax evasion. Students are asked to analyze the ethical dilemma Emma faced and to assess possible outcomes based on the information provided in the case and class discussions.Next, in your initial discussion post, identify, and briefly summarize the case chosen. Then, address the following by working through the three initial steps in the decision-making framework to determine how the ethical conflict should be resolved: 1. Clearly outline the problem (ethical dilemma) and its related unknowns. a. Which IMA ethical standard(s) or AICPA principle(s) is/are violated in the chosen scenario as related to the ethical dilemma? 2. Identify suitable options and gather relevant qualitative and quantitative information, making informed assumptions as needed. 3. Calculate the relevant quantitative and qualitative costs and benefits for each option. Consider the consequences of costs and pricing versus ethics.INTRODUCTION TENSIONS WITH FLIGHT CREW UNION Emma Banks was excited about securing her new job as As a newly appointed onboard services manager, Emma's onboard services manager at EastJet, a regional airline, major job tasks include responsibilities directly related to based in Eastern Europe and governed by the civil aviation passenger inflight services and onboard sales as well as being authorities and tax laws of its home country. in charge of flight crew catering expenses. This includes Prior to accepting this new position, Emma spent three negotiations with suppliers, budgeting, cost control, and years at a midsize accounting company, acquiring experience reporting. Catering services for the crew on duty are regulated in management accounting practices and working on carning by the flight crew union agreement, which describes in detail the CMA" (Certified Management Accountant) credential. various aspects of flight crew working procedures, working Now she is happy to take the next step in her career hours, rest day policies, and the minimum meal requirements development, a path into the exciting world of aviation. for the flight crew on duty (see Table 1). EastJet is known as one of the most desirable employers in During her first weeks at EastJet, Emma attended the region and is constantly in the midst of regional news and management meetings with the representatives of the flight social media attention. While the company enjoyed steady, crew union, where they discussed the terms of a proposed modest growth in passenger numbers during past years, the new union agreement with the airline. The current union latest financial crisis and the increasing competition from other agreement with EastJet seems to be outdated, written at air carriers continuously reduced the airline's profit margins. a time when the company enjoyed rapid growth rates, less As a small air carrier, EastJet primarily focuses on serving competition in its main markets, and continuous profitability. direct routes between the region's capital and major hubs The current agreement gives the flight crew many extra that are strategically important for local businesses. EastJet benefits not common in the airline industry. also adds occasional seasonal flights to popular tourist EastJet's top management requires that any new destinations. EastJet's fleet consists of seven Boeing 737- union agreement reflect actual airline industry standards 500 aircraft, each of which has a total seat capacity of 106 established by regulatory authorities. But the flight crew passengers divided between premium and economy service union wants to keep the current benefits and increase salary classes. Three flight attendants and two pilots are required levels to compensate for the rise in inflation. for each flight.EMMA'S INVESTIGATION possible methods to show even the slightest improvement in the company's margins and a continuous decrease in Emma researched the catering services agreement to EastJet's costs. One strategy was to make sure the company determine the nature of the invoice. No additional services paid as little in taxes as possible. Rebecca explained, "All or terms seemed to be discussed in the agreement, but she catering services related to the flight crew are actually did find that the prices for crew meals and crew catering subject to additional taxation for EastJet. There's a tax-free services were not listed in the general agreement's appendix. limit of $10 a day per crew member, but the actual catering To get more information, she called Bob Stark, financial cost is way above this limit, and because of that we are taxed director of Sky Catering, to ask why essential information considerably more, around 30% more, compared to what was missing from the agreement and to clarify the contents we would pay for overall crew catering costs. In order to of the strange invoice. Bob was quite unconcerned about avoid these extra taxes, we agreed with Sky Catering that the situation, saying, "If something is missing from the the amounts over the $10 limit would be billed separately agreement, then we of course should fix that. From our side, as 'extra passenger services.' It's wrong, I know, but nothing however, we always make sure to have all the important can be done, I guess. Sky Catering will never decrease the information in the agreement. And I am 100% sure that all prices, and the flight crew union will never agree to changes the services delivered are invoiced correctly." Bob hurried to in the meal services," (See Table 2.) end the conversation. Emma was shocked by what Rebecca told her. She Emma was extremely confused. Nobody would give her decided to discuss it with her closest friend, Susan Smith, a clear explanation about the mysterious invoice. Her last who worked as a senior auditor in a major audit company. hope was EastJet's Chief Accountant Rebecca Adams, who Susan confirmed that there are certain limits established for had worked for the company for seven years and should crew-related expenses and sent Emma an excerpt from the be aware of the accounting processes and policies related appropriate law, Foreign-Based Tax Code: Taxation of Civil to catering services. At first, Rebecca seemed a bit nervous Service Aircraft Crew Collective Catering Needs: about Emma's questions, saying, "I think you should have "Tax-free ration is $10 per day per person. If the been told about all these matters before. Your predecessor employer compensates the catering cost $10 per was aware of all this, and Jillian knows as well." day per person, the income is not taxed. If the Rebecca explained what was going on. As EastJet daily catering cost per person is more than $10, the started facing continuously diminishing profit margins amount exceeding the tax-free limit is additionally and increasing pressure to improve its financial stability, taxable under fringe benefit taxation law." the company's chief financial officer (CFO) employed allTAKING A STAND After studying the IMA Statement of Ethical Professional Practice, Emma followed the steps outlined in the "Resolution of Ethical Conflict" section, and called the IMA Ethics Helpline. Emma discussed the problem with an ethics hotline counselor. The helpline is free and provides confidential guidance on ethical issues. After a preliminary discussion of the problem to determine the kind of ethics matter being reported, an ethics counselor will respond to the caller. Confidentiality is maintained at all times. The counselor will not provide a specific resolution but will explain how the dilemma relates to the provisions of the IMA Statement. As a result of her discussion, Emma contacted the company's audit committee and revealed the fraudulent actions. She refused to sign approvals of the invoices unless the issue was resolved in an ethical manner. Coincidentally, EastJet's CFO left the company during the following weeks, and a newly assigned CFO promoted the ethical decision making. He actively engaged in the resolution of this conflict, and hired independent auditors to advise EastJet on minimizing the negative impacts of unethical behavior