Airline Capital Financing After Great Recession | Free Essay Example

Airline Capital Financing After Great Recession

Words: 561
Topic: Tech & Engineering

The Great Recession of 2008 has caused a rollback of funding in the airline industry. Many banks associated with the aviation industry have reduced their loans for many airlines around the world. One of the significant problems in the financing of the aviation is that they are capital intensive because they require a lot of capital to work. There are several different ways to finance the airline. They are: cash flow, operating leases and sales, short-term bank loans, export credit guaranteed loans, taxes, manufacturer support, enhanced equipment trust certificates (debt funds for airlines) (Wensveen, 2011). One of the major challenges of financing of the airline is that banks actually do not support the carriers.

Manufacturers help the airline financing backstop, but these rates may reduce the profits of the airlines. After the financial crisis of 2008, there have been some shifts in the cooperation of banks and carriers; banks support the airline industry through the provision of short-term loans for the purchase of upgraded aircrafts. Nowadays, financing airlines is a huge problem for the aviation industry. Revenues of airlines are usually quite heterogeneous and unstable. Often, carriers’ profits are not enough to cover the investments. At the same time, the amount of debt relative to capital has increased for many carriers to ranges that had a negative impact on their creditworthiness. It restricted access to external funds for some airlines. Also, it has increased the number of fees and tightened payment requirements from manufacturers.

In fact, the only internal source of airline financing is net profits received from taxes (Wensveen, 2011). The demand of airlines for capital funds remains high. Some carriers have a very high liquidity and balance in order to ensure the sources of financing in the money market. Some carriers will have to save money from the sale of assets and changes in route structure to remain competitive. The industry is in dire need of funding.

The jet age is an era in the history of development aircraft, which was caused by the creation of advanced airplanes with turbine engines. These planes are high-speed. They can fly higher, faster and further than usual aircrafts. It makes transcontinental and intercontinental trips more comfortable and rapid. They can make non-stop long-distance flights. One more advantage of jet airplanes is that they are adapted for the transportation of many people. Also, they make a multitude of flights possible within a single day. People with different social background have access to the service of jet planes as the ticket costs for jet airplanes are rather affordable.

The development of jet airplanes demands additional financing sources as the innovation and advancement of the aviation industry is rather capital-intensive. Today, jet airplanes are used in military and civil aviation. The jet engine is an innovational opportunity that allows the aviation industry to reduce the operating costs and the prices for airplane tickets (Vasigh, Fleming & Humphreys, 2015). The development of turbine engines transformed the aviation industry. Both, providers and consumers benefited from the jet age. Nowadays, people from all over the world can afford fast, low-cost fly from one point of the world to another. Moreover, the flights became safer with the advent of jet-propelled aircraft. Jet age opened the access to new sources of airline capital financing. Exports of aircrafts to other countries contribute to the aviation sector significantly (Vasigh et al., 2015).

Reference List

Vasigh, B., Fleming, K., & Humphreys, B. (2015). Foundations of Airline Finance. New York: Routledge, Taylor & Francis Group.

Wensveen, J. (2011). Air Transportation: A Management Perspective (7th ed.). Burlington, VT: Ashgate Publishing Company.