Chapter 32: Discriminant, Logit, and Neural Network Models for Measuring Financial Fitness: Application to the US Airline Industry

An airline filing for bankruptcy protection in the USA was unheard of just 21 years ago, when Braniff Airways failed in 1982. It has now become an almost common everyday event. Since that year, there have been a total of over 140 filings in the USA under the Bankruptcy Act of 1938. Out of the 16 major US carriers that have existed since the 1960s – known as trunklines then and now called “majors” – eight have filed, some more than once. Two have disappeared forever. Braniff and Eastern declared bankruptcy and ceased operations. Pan American filed, and now operates as a regional carrier. Financially troubled Northeast, the smallest of the so-called trunklines, merged with Delta in the 1970s to stave off what would have been the only insolvency in the pre-deregulatory period. Continental and TWA filed twice, and US Airways and America West once. Northwest nearly filed in the early 1990s after recording record losses. Add to this list, the recent filing of United Air Lines, US Airways (for the second time), and the threat of American to file, and the magnitude of the problem in clearly driven home. These carriers represent over 50% of this segment of the US industry. It is doubtful that any other significant industry in the USA has had such a poor financial track record over such a long period of time.