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Insolvency and crisis: a study of the determinants of the exit of airlines in the Brazilian market

2008; SciELO; Volume: 2; Issue: 2 Linguagem: Inglês

2238-1031

Rodrigo Ferreira de Oliveira, Rodrigo Arnaldo Scarpel, Alessandro V. M. Oliveira,

Aviation Industry Analysis and Trends

This paper constitutes the first attempt in the literature to identify the determinants of the bankruptcy of the major legacy carriers in Brazil within the period of 1983 to 2003. The airlines under analysis here were Varig, Vasp and Transbrasil. The situation of the industry as a whole was also analyzed. The econometric study of the bankrupt airlines allowed a better understanding of the causes of the exit of an airline in the market. An adequate prediction of those departures allows the regulatory authorities to anticipate the actions that will soften these effects, especially regarding the disruption of the service. To determine the airlines’ bankruptcy conditions three financial indexes had been analyzed: Debt Ratio (EG), Asset Turn (GA), and Return on Assets Before Interest and Income Taxes (ROA AJIR). An index PS, that reflects the airlines’ solvency, was also analyzed. The PS index is based on the other indexes EG, GA, and ROA.