Do Finances Influence Airline Safety, Maintenance, and Services

This study addresses the question of whether financially stressed airlines are likely to cut back activities contributing to airline safety, to reduce maintenance expenditures, or degrade service levels. Theoretical analysis shows that financially unsuccessful airlines have some incentives to cut back in these areas. The forces influencing such decisions are so numerous and complex, however, that we cannot predict whether such cutbacks would or would not occur in any particular case. We do show, however, that variations in the profitability, liquidity, and debt-equity leverage of the eleven trunk airlines over the period 1965 to 1977 did not affect their accidents, maintenance expenditures, and passenger complaints. A summary of this study and our findings are presented in this report. (Author)