Altman’s Z-Score in the Airline Business. Case Study of Major U.S. Carriers. Are they Potential Bankruptcy Candidates?
Abstract
Over the last decade the U.S airline industry has experienced considerable shifts in operations conditioned by economic downturns both early in 2000s and from late 2007 until mid-2009 and historically high fuel prices which caused U.S air carriers to incur significant financial losses. These adverse developments in the airline industry during the last decade have even resulted in bankruptcy filings by several U.S biggest carriers, followed by mergers and acquisitions among them to become financially stronger and better cope with challenges created by changes in the economic environment. Therefore, the research paper places an emphasis on the analysis of possible bankruptcy for seven largest U.S airlines using Altman’s bankruptcy prediction model (Z-score) for six consecutive years (2007-2012) based on the selected carriers’ 10-k annual SEC filings. The results of the research showed that seven U.S largest carriers remain potential bankruptcy candidates despite all the recent improvements in the airline industry.
Keywords: Airline business, Bankruptcy, Financial ratio, Earnings, Fuel prices, Economic downturn
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