Predicting firm's financial distress: A research on airline sector

Financial failure refers to firms' failure to fulfill their financial capabilities, particularly the obligation pay. Financial failure may arise due to the firm's policies, and firms may undergo financial failure due to macroeconomic indicators. Several methods have been developed to determine financial success. These are usually the results obtained from the financial statements of the company by using a variety of statistical methods to bring together a trend to create a result. One of the most important of these methods is the model developed by Edward Altman. In this model, the value obtained by multiplying the data obtained from the financial statements of companies by certain coefficients is used as a classification tool. Altman then revised the model to various sectors. In this study, Z" Score that Altman has developed for service firms has been used. In the study, 30 airline companies that have been continued their activities and have terminated their activities in recent years were selected and classification was made by using Z" Scores which have been obtained from 7 year financial reports belonging to these companies. The discriminant analysis of these scores revealed that 78% of the firms have been classified correctly. As a result of the regression analysis, it has been revealed that the Z" Score has been explained by the rates used at 67,8%. The results show that the model is insufficient in predicting financial failure due to the sectoral characteristics of airline companies.