Research On The Impact Of Public Crisis On The Financing Mode Of Aviation Industry

The outbreak of COVID-19 at the end of 2019 was a major public crisis event.The aviation industry suffered the hardest hit because of the epidemic: flight suspension,sharp decrease in revenues,perpetual fixed costs and debt repayment.However,governments at all levels,banks and other financial institutions would adopt relevant policies and measures to ensure or support affected enterprises.The issue to be studied in this paper is that what the aviation industry,as a heavy asset,can do to get support and successfully survive and recover through adopting suitable financial methods when the public crisis occurs.The author finds that there is a lack of relevant research on the financing behavior of aviation enterprises under public crisis through the literature review of these two topics.As for the concept definition,this paper identifies COVID-19 epidemic as a public crisis.Meanwhile,the author determines the connotation and classification of enterprise financing according to the characteristics of the aviation industry.The theoretical basis of this paper mainly includes crisis management theory,crisis life cycle theory,MM theory,trade-off theory and financing priority theory.This paper first analyzes the basic characteristics of aviation industry financing under typical circumstances,which is external financing as the main way and internal financing the secondary,preference of debt financing,and large lease financing in amount and long in cycle.Then it analyzes the impact on the aviation industry under the public crisis.First,the airline industry’s revenues decline given the decrease of travel;second,the government has introduced a series of policies on financial,tax,etc.to help enterprises tide over the crisis;last,the Internet and other information technologies have turned to be more popular than before.Then,in accordance with the crisis life cycle management theory,there are three phases of the aviation industry recovery: “suspension phase”,“reactivation phase”,and “recovery phase”.Then,with the help of the capital structure theory and FRICT analysis method,the author analyzes the financing needs of the aviation industry at respective phases and how the public crisis shapes the choice of the financing mode of aviation enterprises.Finally,the paper designs the content and indicators to evaluate the financing effect from both qualitative and quantitative aspects.In the case study,the author takes China Eastern Airlines,one of the three state-controlled airlines in China,as an example for the research.After introducing the background of China Eastern Airlines,this paper analyzes the major impact of the public crisis on China Eastern Airlines: sharp decrease in revenues,the disadvantages of China Eastern Airlines in the crisis,such as high asset liability ratio,capital intensity,high cost and high operational risk,and the advantages of core competitiveness and strong internal management ability.This paper draws a detailed analysis and comparison of the financing methods of China Eastern Airlines in different phases before and after the epidemic,analyzing the reasons of those changes and giving evaluation of the financing effect.Through theoretical analysis and case study,here are conclusions:(1)In different phases of the public crisis,there are different operating ways and financing needs in aviation industry.(2)In the “suspension phase”,enterprises make good use of the characteristics of short-term debt financing and national policy support to obtain funds efficiently in the light of their own advantages and focus on Sc P and short-term bank loans.(3)In the “reactivation phase”,enterprises should pay attention to their own scale of floating debt,adjust the debt structure,and reduce financing risks;(4)In the “recovery phase”,enterprises need to carry out long-term financing planning and long-term consideration of equity financing and aircraft leasing.During the public crisis,aviation enterprises are faced with high financial risks because of their heavy reliance on debt financing and excessive financial leverage.Enterprises should give full play to their advantages,overcome their disadvantages,actively deal with public crises,and turn “crisis” into “opportunity”.