The Analysis Of The Optimal Capital Structure Applied In The Air Transport Industry

Since Interest marketization was implemented since July 20, 2013, Chinese enterprises have been exposed to both risks and opportunities. Air transport industry is a newly rising backbone industry in China in the past 20 years, whose loan borrowing mode mainly includes bank loans, issuance of bonds and buyer’s credit offered to Chinese enterprises by foreign banks. Because of the influence of interest rate liberalization, banks are applying stricter credit rating policy, which undoubtedly proposes higher requirement on the operational status and credit ratings of airline companies when they raise funds from bank loans, exposing airline companies to more risks in terms of finance and fund-raising.Airline companies mainly face problems in two aspects: the pressure of instant repayment and heavy load of interests. Risks and pressure both have negative impact on airline companies. Therefore, how should airline companies optimize their own capital structure and increase their competitiveness under such economic environment would be the major topic of this paper. Based on theories and combining empirical analysis, this paper adopts comparative analysis and uses the example of listed airline companies which are very representative to analyze their capital structure and industrial data, finally concluding theoretically optimal capital structure through the statistical regression model for the air transportation industry. This paper mainly uses China Southern Airline as the example and compares its actual capital structure with the theoretically deducted optimal capital structure for the industry, finding out the shortages of China Southern Airline in terms of capital structure, proposing the recommendations for them to optimize their capital structure.The whole paper is divided into five chapters:Chapter 1 is the exordium. It firstly introduces the background research philosophy of the paper. Starting from China’s macro economic background and current status of the capital structure in the air transport industry, this part sheds light into the research contents and methods of this paper.Chapter 2 analyzes the rising and development of domestic and international theories regarding capital structure based on the review of capital structure, laying good foundation for studying the air transport industry’s optimal capital structure and how to adjust the capital structure.Chapter 3 mainly expounds the theoretical model used this paper. First of all, the establishment of this model is based on the fundamental assumption that all companies are reasonable persons. So, in the operation and development of companies, to satisfy the going-concern assumption, operators would work hard and develop toward the optimal direction. We have selected two capital structure indexes: asset-liability ratio and interest-bearing ledge asset-liability ratio. By analyzing relevant financial indexes of capital structure of eight listed airline companies from 2003 to 2013 and the macro economic index data of China over the same period, using the Eviews statistical software and relevant statistical methods, the data was subject to regression analysis, concluding the air transport industry’s optimal capital structure.Chapter 4 of this paper introduces the leading company in China’s air transport industry, China Southern Airline, including its background and current status of its capital structure. By comparing the current status of China Southern Airline’s capital structure and the optimal capital structure concluded in our theoretical model, we analyzes the shortage of China Southern Airline’s capital structure and proposes recommendations for its optimization.The final chapter summarizes this paper’s research conclusions and shortages. As the data that could be acquired is very limited, if only the listed state-owned airline companies’ capital structure is considered and the capital structure of civil airlines is ignored, the air transport industry’s capital structure we have concluded may not be universally suitable. Based on this status, this paper proposes new fields for exploration.