This website uses cookies to help us give you the best experience when you visit our website. By continuing to use this website, you consent to our use of these cookies.
Read more
Using a sample of commercial aircraft transactions, the paper decomposes the raw fire sale discount on sales of aircraft by distressed airlines into three components: (i) quality impairment due to under-maintenance, (ii) misallocation to lower productivity users, and (iii) a liquidity component due to the immediacy of the sale.
Results indicate that financially distressed airlines sell aircraft that have a lower life expectancy and lower productivity. We combine the two effects into a quality impairment adjustment that explains around one half of the raw liquidation discount. For the remaining discount of around 9%, we find no direct evidence of misallocation to lower productivity users and industry outsiders. Rather, the post-sale users of distressed aircraft have significantly higher productivity than the distressed sellers, while their productivity is similar to that of other (non-distressed) users. In summary, our results indicate that the inefficiencies associated with fire sales are likely to be lower than have been previously documented.
In this article, I attempt to clarify the appropriate government tools for responding to different forms of market distress in times of crisis. I provide...
In this essay, we propose a principled approach for government bailouts of critical/systemic firms who find themselves in COVID-19-induced financial...