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Aviation History
1959
1959 - 1068.PDF
A "FLIGHT" SPECIAL FINANCING THE JETS MONETARY PROBLEMS OF THE TRANSITION TO TURBINE TRANSPORT—PART 1 By Stanley Oates SINCE October 1955 the world's airlines have become com-mitted to capital expenditure in excess of £1,000 million tocover the replacement of piston-engined fleets by turbine- powered aircraft. This amount of money can be put into per- spective by showing that it is roughly equal to the total original rwL x. a^rcraft at Present in service with scheduled airlines throughout the world. To finance an investment programme of this magnitude would ^HiT" ^U5 Problems to any industry. But in the case of the ££wL> dlfi&cuIty has been aggravated by the air transport industry's unstable financial record during the past decade and oy me general decline in earnings since the first large jet-aircraft fiS™S WCIe $*?* three-and-a-half years ago. These factors have rorced most airlines to search for loan capital from financial institu- uons such as banks and insurance companies. The only other main source of additional capital, the ordinary investor, has been frightened away from the airline industry by its poor investment record. The consequences of this dependence on loan capital may well turn out to be more serious than the difficulties of actually raising the required equipment funds. The dangers of over- reliance on loan capital are particularly likely to affect the joint- stock carriers, for in their case a well balanced capital structure is a condition indispensable to financial health. Banks and insurance houses, for example, have often insisted on repayment terms which, in view of the unproven operating economies of the new aircraft, are extremely onerous. Although the financial records of individual airlines differ, even the most profitable sections of the global industry, the U.S. domestic trunk and intemarionaj carriers, have not emerged from the past decade with a record of stable financial achievement. Before mail pay they incurred a net deficit of £2 million in 1947, £7 million in 1948 and £11.4 million in 1949. Results improved
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