Quality and productivity in aircraft sales: why the welfare costs of fire sales are overstated

Franks, J, Seth, G, Sussman, O and Vig, V (2021) Quality and productivity in aircraft sales: why the welfare costs of fire sales are overstated. Working Paper. Working Paper. OPEN ACCESS

Abstract

The paper measures the inefficiencies associated with fire sales in the airlines industry. We find evidence that fire sale discounts have been significantly overstated owing to under-maintenance and quality impairment of aircraft sold by distressed airlines. Using productivity data, the paper provides evidence that the bankruptcy process allows reallocation of distressed aircraft from low productivity to high productivity operators, suggesting a bankruptcy process that has a cleansing effect on the industry, rather than one of misallocation. The inclusion of the quality adjustment significantly reduces fire sale discounts on the sale of distressed aircraft, and the differences between Chapter 11 and Chapter 7 sales largely disappear. The results suggest that the welfare costs associated with fire sales might be significantly lower than those documented in prior studies.

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Item Type: Monograph (Working Paper)
Subject Areas: Finance
Additional Information:

This project has received funding from the European Research Council under the European Union's Horizon 2020 research and innovation program (grant agreement no. 679747).

Funder Name: European Research Council
Date Deposited: 17 Sep 2021 12:21
Last Modified: 15 Oct 2021 12:23
URI: https://lbsresearch.london.edu/id/eprint/1956
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