The Opportunity

• Determine the value of a bankrupt Caribbean airline for purposes of liquidation and paying creditors.

The Challenge

• The analysis had to determine the value of the individual assets of the airline taken separately, not as a whole.
• The individual tangible assets of the airline include aircraft, communications infrastructure, a maintenance center and related equipment, and buildings.
• Further, there was potentially value in some of the intangible assets such as customer lists and the brand of the airline.
• Part of the challenge was determining the market for the assets, not simply the replacement cost.

The Solution

• A number of methods were used to estimate the value of the airline.
• The liquidation value of the firm was measured each asset at a time based on resale value and replacement cost.
• Resale value was determined based on recent sales of similar assets adjusting for depreciation, differentiation, etc.
• The value of the customer lists was determined based on revenue generated per customer, flying patterns and frequency, etc. The value of a particular customer had to be adjusted for their likely future flying patterns given one fewer airline in their market. In other words, if there were only one competitor in the market, then that competitor could be assured of attracting most of the customers on the list without having to purchase the list. In this case, there were multiple airlines, thus giving value to the customer list.

The Deliverables

• A final report was issued that described the valuation estimates, the important factors involved in the analysis, and the variances in the results.

The Results

• The firm used the estimate to acquire a short-term loan for reorganization and partial liquidation purposes.

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