Determinants of financial distress in the European air transport industry: The moderating effect of being a flag-carrier

Abstract

Due to the COVID-induced global collapse in demand for air travel, the year 2020 was a catastrophic one for the aviation industry. A dramatic drop in operating revenues along with continuing fixed expenses drained the cash reserves of airlines, with consequent risks of financial distress and, potentially, even of bankruptcy. Flag-carriers are a special group in the airline business—they are considered to have privileges in terms of the support given by governments while, on the other hand, are often viewed as having low efficiency and performance. This study aims to estimate for European airlines the interaction effect of being a flag-carrier (flagship) with the relationship between leverage, liquidity, profitability, and the degree of financial distress. Findings obtained from analysing 99 European airlines over a period of ten years, indicate that the negative influence of leverage on financial stability is higher in the case of flag carriers (flagship). The impact of liquidity and profitability on financial health is more positive for flagship than for non-flagship carriers. These findings are not limited to contributing to the existing literature, but also have significant practical implications for executives, managers, and policy makers in the European air transport sector.

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“…Financial distress di perusahaan seperti arus kas yang tidak mencukupi, Fluktuasi pendapatan, rasio aset-kewajiban, hilangnya kepercayaan oleh kreditur dan pemasok, capital structure yang buruk, tata kelola perusahaan yang lemah, dan persaingan yang ketat untuk faktor-faktor produksi dan pasar (Ikpesu dan Eboiyehi, 2018) namun (Giarto dan Fachrurrozie, 2020) mengungkapkan penyebab financial distress karena adanya utang yang meningkat, penjualan yang menurun dan perusahaan sedang dalam masa sulit. Ohlson (1980) mengidentifikasi capital structure sebagai penentu signifikan Financial distress perusahaan, sejalan dengan (Ohlson, 1980) bahwa Dalam industri penerbangan, capital structure perusahaan sangat penting, (Shi dan Li, 2021) beberapa kajian literatur beberapa berpendapat hasil penelitian Capital structure berpengaruh negative terhadap financial distress (Ikpesu dan Eboiyehi, 2018), (Ohlson, 1980), dan (Ullah dan Bagh, 2019). Hasil berbeda diungkapkan oleh (Utami, Hirawati dan Giovanni, 2020), (Opoku-asante, 2021)(Abdioğlu, 2019), dan (Elena dan Khugaeva, 2018) dimana ada pengaruh capital structure terhadap financial distress perusahaan.…”

“…Tingkat kemungkinan perusahaan menghadapi kesulitan keuangan sifatnya kecil jika tingkat profitabilitasnya tinggi (Bradley, Jarrell dan Kim, 1984). Dalam beberapa penelitian profitability berpengaruh terhadap financial distress (Shi dan Li, 2021), (Kiraci, 2019), (Dirman, 2020), dan (Saputra dan Salim, 2020).…”

“…kontroversial penelitian sebelumnya dan keterbatasan penelitian (Shi dan Li, 2021) merekomendasikan untuk menambahkan perspektif baru dengan variable moderasi, maka penelitian ini menambahkan moderasi Firm size untuk menguji signifikan tidaknya capital structure, profitabilty, sales growth berpengaruh terhadap financial distress bersamaan dengan firm size sebagai variabel moderasinya. Kedua, penelitian ini menguji apakah ada perbedaan hasil apabila sampel perusahaan dipisahkan antara transportasi darat, laut dan udara.…”

“…Oleh sebab itu, financial distress dapat terjadi. Hasil tersebut sejalan dengan (Dirman, 2020), (Muntahanah, Huda dan Wahyuningsih, 2021), (Kumar dan Ferndanez, 2019), (Asfali, 2019), dan (Shi dan Li, 2021) menyatakan profitabilitas terhadap financial distress pengaruhnya adalah positif.…”

Bankruptcy prediction for the European aviation industry: An application of the Altman model

“…In the literature, the majority of studies focused on US airline financial distress and Altman Z ‐score (1968) are mostly applied (Alan & Lapré, 2018; Davalos et al, 1999; Gritta, 1982; Lu et al, 2014; Ribbink et al, 2011; Stepanyan, 2014). While previous studies have utilized the Altman Z ‐score model for European airlines (Shi et al, 2023; Shi & Li, 2021), a comprehensive analysis of its predictive power has been lacking. To address the existing gap in the literature regarding the accuracy of updated Z ‐score models on European airline companies, in this present study, we assess the predictive capacity of the updated Altman models as applied to European air carriers.…”