Journal of Operational Risk

Risk.net

The strange case of the Jet Airways bankruptcy: a financial structure analysis

Matteo Rossi, Giuseppe Festa, Ashutosh Kolte and S. M. Riad Shams

  • The global risk to which enterprises are exposed on the market affects inevitably the financial structure.
  • The Altman Z-score and the Piotroski F-score are useful tools for the prediction of potential bankruptcy, and the Beneish M-score for the prediction of potential earnings manipulation as financial malpractice.
  • The case under investigation is the Jet Airways bankruptcy.
  • The evidence that has emerged from the analysis showed that there was no financial malpractice, but problems about the connection between the business model and the financial model underlying the Jet Airways bankruptcy.

The global aviation industry has changed very rapidly in recent years, mostly due to the evolution of both technology and commercial models. These changes have also impacted the sector in India, forcing Indian airline companies to face new and unpredictable challenges, not always successfully. The bankruptcy of Jet Airways is a relevant but still “unsolved” example in this respect. We investigate the financial structure of the corporation, with the aim of understanding whether financial turbulence for an airline company can constitute an antecedent for predicting the risk of bankruptcy. A combined evaluation using the Altman Z-score, Piotroski F-score and Beneish M-score highlights that financial instability works as a bankruptcy predictor (through Z- and F-scores) in the case under analysis, at the same time excluding (through the M-score) potential earnings manipulation as financial malpractice.

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