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Running head AIRLINE FINANCIAL ANALYSIS Financial Statement Analysis of Selected Airlines Companies Fernando K Benavente Kristine Johnston Rasjid Reksodiputro and Jan Axel Tribler Hawaii Pacific University Industry Background The terrorist attacks of September 11 2001 brought about dramatic changes in the United States US airline industry both in terms of short-term profitability and in standard operating procedures In spite of the economy recovering from recession the industry reported net profits of 5 billion in calendar year 1999 and 3 billion in 2000 Smallen 2002 These gains would quickly deteriorate in the months following the attacks as a frightened public cancelled trips resulting in a 2001 net loss of over 10 billion While the federal government intervened with a 15 billion bail-out package one-third of which would be received in cash and the balance as guaranteed loans Corridore 2002 the losses continue to mount as airlines face increased security costs and lagging passenger counts Investors are wary about the industry as financially strapped companies struggling to stay afloat by reducing the number of flights and value-added services streamlining operating costs laying-off thousands of employees and restructuring debt labor force Many companies have had to seek loans to meet operational expenses resulting in the total debt load of the industry surging from 55 billion to 90 billion since 1999 towering nine times over equity Several airlines have or are on the brink of filing bankruptcy protection This paper examines the annual statements of three companies from the perspective of an investor and employs financial statement analyses as the basis for a recommendation of the most favorable investment choice Company Background Continental Airlines Founded in 1934 Continental Airlines Hawaiian is the fifth largest US airline operating in its New York Houston and Cleveland hubs Expressjet is Continentals primary subsidiary running mostly regional flights Continental also operates in Europe Canada Mexico Central and South America and throughout the world The airline has differentiated themselves
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