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An Assessment and Measurement of Risks in the International Airline Industry: A Study of the ICAO Carriers Over the Period, 1990-2013


A prior study by one of the authors (Gritta, et. al. 2006) published in the Journal of the Transportation Research Forum, examined the extent of operating, financial, and total leverage facing the major U.S airlines, those carriers with total revenues of $1.0 billion or more. The study found that the vast majority of the carriers were highly leveraged at both the operating and financial levels and that this resulted in highly unstable profitability and increased the dangers of bankruptcy.

The global airline industry has always been highly cyclical and somewhat fixed-cost driven. Airlines are thus high in what financial analysts refer to as operating leverage. In addition, the many airlines have followed aggressive debt strategies; that is, they have chosen to use large amounts of long-term debt finance to purchase assets. This results in a high degree of financial leverage. In the past, the resulting combined leverage has created severe financial problems for major carriers, both domestically and internationally.

The current study seeks to examine a sample of foreign carriers in order to measure the extent of risks on the international level. In doing so, comparisons will be made to the large U.S. carriers. If possible, the authors will use the same time horizon as in the published paper, although in some cases carriers are too new to have such a history.

by Carl Scheraga and Richard D. Gritta

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