Companies with high levels of debt could be experiencing financial distress and eventually fall into bankruptcy/reorganization. Financial distress is not only limiting company operations, but also has indirect negative effects such as loss of potential suppliers, customers, and lower ability to attract quality labor. U.S. airlines, however, for many years have purposefully maintained highly levered capital structures, and many of these companies experienced bankruptcy several times. Why would the airlines pursue such risky capital budget policies? 

Answer rating: 100% (QA)

The airline industrys preference for highly leveraged capital structures is rooted in a combination of historical operational and financial factors He... View the full answer