Bankruptcy prediction for the European aviation industry: An application of the Altman model

Aviation industry is extremely vulnerable to economic turbulence or a pandemic. Over the past decade, a number of well-known European airline brands have gone into bankruptcy, with consequences such as leaving thousands of passengers stranded abroad. The present research assesses the predictive power of the updated Altman Z-score model (1983 and 2017) using data on European airline bankruptcies over the period 2009-2020. The results indicate that the Z ''-score (2017) for private non-manufacturing companies shows satisfactory predictive power when applied on European aviation industry. In this study, we analyze in depth the performance of the updated Altman Z '- and Z ''-scores (1983, 2017), connecting airline's financial and non-financial information, and provide a comprehensive interpretation of Z-score predictive power. We aim to contribute to the literature by offering a unique and novel perspective on the Altman model's accuracy for the European air transport industry.