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Aadarsh Thakur, Aashish Chhiller, Anant Chaudhary, Apoorv Gaur, NikhilChilwantZ SCORE ANALYSS

!in"#sher vs $S Airways

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Contents!in"#sher Airlines%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%&

$S Airways%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%'

Se(uen)e o* events%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%+

STATEENTS%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%-

Cash .low State/ent%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%-

0alan)e Sheet1 !in"#sher%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%2

3ro#t4Loss State/ent%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%5

0alan)e Sheet1 $S Airways%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%6

Cash .low and 3ro#t Loss State/ent%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%7

RATOS AN8 ALTAN9S SCORE%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%:;

Alt/an Z4S)ore

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Z SCORE ANALYSS

!in"#sher Airlines.ounded in &;;' and havin" started )o//er)ial operations in ay9;-,

!in"#sher Airlines was a /aDor player in the ndian do/esti) aviation

industry y &;;5% At one point o* ti/e, BiDay allya9s !in"#sher Airlines had

the se)ond lar"est share in the ndian do/esti) air travel /arket% owever,

the airline had een *a)in" a severe #nan)ial )risis durin" the &;;54;7

period, due to a variety o* reasons% n .eruary &;:', the ndian "overn/ent

announ)ed the withdrawal o* do/esti), international Fi"ht entitle/ents

"iven to !in"#sher Airlines% n hindsi"ht, the i/portant reasons *or its *ailure

were1

•  Acquisition of Air Deccan: t was a really ad de)ision, with !in"#sher

Airlines reportin" losses up to :; illion *or ' su))essive years,

severely aHe)tin" its #nan)ial staility%• Huge Debt: The )o/pany spent e)essively on interests, with nearly

&;I o* its revenue ein" spent on it, )o/pared to around 2%-I *or Jet

Airways% This was )learly unsustainale%

• Low Operational Eciency: The !in"#sher Feet was lar"e and varied,/ade up o* lots o* diHerent planes% So/e were on lease and so/e had

een pur)hased% owever, their /aintenan)e, upkeep and Fyin"

s)hedules were not eK)ient, leadin" to lar"e operational )osts% This

*urther a""ravated their already patheti) situation%

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$S Airways.ounded in :7'5 and known as the world9s lar"est airline a*ter /er"in" with

A/eri)an Airlines, $S Airways went throu"h ankrupt)y phase durin" &;;&4

&;;+% n Au"ust &;;&, it #led *or ankrupt)y when it was 2th lar"est airline%

Airline industry was already under pressure as it lost :%+ illion in & o*

&;;& and :: illion in &;;:% any s/all )arriers #led ankrupt)y while

/any others were on their way% owever, $S Airways was the #rst one *ro/

the lar"er players in the industry to do so% n hindsi"ht, the i/portant

reasons ehind this were1

• 9/11 attack: $S airways had usiness )on)entrated in East )oast area%

A*ter atta)k, airports were shut down leadin" to loss o* revenue% $S

airways reported loss o* & illion that year% EHe)ts )ontinued till & o*

&;;& when loss o* &+6 /illion was reported%• necient operations: Or"aniMation was in need o* stron"

restru)turin" and rea)tions in )osts with )uts in wa"es and staH% u"e

losses were reported *ro/ areas where they had s/all presen)e%

neK)ient routin" was another *a)tor )ontriutin" to this%• !aile" #erger: n &;;;, $AL )orp% was interested in uyin" $S

Airways% Ne"otiations delayed due to oDe)tions due to laour unions,

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)usto/ers and ant trust re"ulators% .inally, it had to withdraw *ro/

oHer and had to *a)e losses due to stalled operation and penalty o* -;

/illion%

Se(uen)e o* events

&+th ay&;;;

$AL )orp% oHers deal *or /er"er

&5th July &;;: $AL withdrew pur)hase oHer

::thSepte/er&;;:

Atta)k on >orld Trade Centre% Govt% orders to shutdown airports%

::th Au"ust&;;&

.iles *or Chapter :: ankrupt)y

&;;' Starts lookin" *or #nan)in" and /er"er partners

:'thSepte/er&;;+

&nd ankrupt)y announ)ed

 

Now, havin" *a/iliariMed ourselves with oth the airlines and their pri/e)auses *or *ailure, we will try and assess their #nan)ial vulnerailities durin"their ti/es o* )risis usin" the Alt/an4Z s)ore% Our ai/ is to understand andtest Alt/an4Z s)ore as an i/portant #nan)ial and re"ulatory tool, yapplyin" the/ to *a/ous ankrupt)y )ases and Dud"in" its per*or/an)e% 

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0alan)e Sheet1 !in"#sher

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3ro#t4Loss State/ent

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0alan)e Sheet1 $S Airways

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Cash .low and 3ro#t Loss State/ent

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RATOS AN8 ALTAN9S SCOREAlt/an Z4S)ore

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RATO A OR!NG CA3TAL ?TOTAL ASSETS=

Airlines Year 1 Year 2

!in"#sher Airlines ;%:7 ;%;2

$S Airways ;%;25: ;%;66'

RATO 0

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RATO E

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Ratio 8, whi)h is the arket Balue o* E(uity to Total Liailities ratio si"ni#es

the proportion o* the total *und to the det% * det is /ore, an oli"ation to

pay is )reated in)reasin" the risk o* the shareholders% Thus i* the ratio is less

than : it would lead to enhan)ed risk in ti/es o* ad per*or/an)e% As )an e

seen the value is /u)h less than one%

Ratio E, whi)h is the Sales to the TA ratio si"ni#es the aility o* the asset to

"enerate sales% This value should e as hi"h as possile% This value is #ne

a))ordin" to the ratios%

 

$S Airways Z4S)ore

Z −Score for !ear 2002=1.2 A+1.4B+3.3C +0.6 D+1.0 E=2.27

Z −Score for !ear 2003=1.2 A+1.4 B+3.3C +0.6 D+1.0 E=1.82

 

$nlike the )ase *or !in"#sher airlines, the s)enario *or $S airways was very

diHerent% i"h operatin" )osts pro/pted the )o/pany to /er"e with another

airline to keep up% n &;;;, $S airways was planned to e a)(uired y $nited

Airlines ut this deal went sour e)ause o* antitrust re"ulations and *ear o* a

/onopoly )reation whi)h *or)ed the *ederal "overn/ent to lo)k the deal%

0oth airlines lost /oney e)ause o* stalled ne"otiations% 7?:: was a disaster

whi)h #nally *or)ed the airline into a Chapter :: ankrupt)y, whi)h )alled *or

#nan)ial reor"aniMation, and wasn9t an operation )easin" or assets

li(uidatin" ankrupt)y% So, there is not /u)h to e predi)ted aout this )ase

y a Z4s)ore, sin)e this was lar"ely aHe)ted y outside *a)tors

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stale enou"h% 0ut ratio C takes a sudden *all in &;;' whi)h /eans that the

earnin" power "reatly redu)ed a*ter its *ailed /er"er and terrorist atta)ks%

Ratio 8 is a"ain less than : whi)h indi)ates hu"e risk in ti/es o* ad

per*or/an)e% As )an e seen, the )o/pany )ould not *a)e sudden eternal

un/iti"atale events% Ratio E is a"ain #ne and in no way su""ests that $SAirways is "oin" down%

RE.ERENCES:% http1??theu"roup%)o/?38.?!in"#sherPAnnualPReportP&;::P:&%pd* &% http1??theu"roup%)o/?38.?.lyI&;!in"#sher?annual

I&;report?!in"#sherPAnnualPReportP&;:;P&;::%pd* '% http1??en%wikipedia%or"?wiki?$SPAirways

+% http1??en%wikipedia%or"?wiki?!in"#sherPAirlines-% http1??en%wikipedia%or"?wiki?Alt/anPZ4s)ore2% http1??www%)apitaline%)o/?user?*ra/epa"e%aspQid:5% http1??iDr)/%or"%in?download%phpQna/eiDr)/4+4vol4&Pissue46Part4

:6%pd*@pathuploaddata?iDr)/4+4vol4&Pissue46Part4:6%pd* 6% Annual Report $S Airways &;;&7% Annual Report $S Airways &;;'

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