Financial Distress in Indian Aviation Industry: Investigation Using Bankruptcy Prediction Models

Abstract

The Indian aviation sector over the recent years has shown a significant growth prospects on various parameters like passenger traffic, freight traffic, aircraft movements and number of airports, among others. But ironically the financial performance of most of the air carrier individually is not at all impressive. Every five years one airline in India is being grounded, latest being Jet Airways which had to suspend its operations in April 2019 due to severe financial crunch. The primary aim of this paper is to assess the current financial health of different Indian airline companies. This study uses four different models i.e. Altman Modified Z” Score Model, Pilarski Model, Fuzzy Logic Model and Kroeze Model to test the existence of financial distress and simultaneously aims to assess the applicability of these models on the Indian aviation sector. The models have been applied on four airline companies. Models indicate the existence of severe financial distress in three out of four chosen airlines and also indicate their suitability to be applied to the sector. The study contributes to the existing literature on Indian aviation by attempting to indicate the suitability of studied models for indicating financial distress which can lead to potential bankruptcy.