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Quality and productivity in aircraft sales: why the welfare costs of fire sales are overstated



Publishing details

Working Paper

Authors / Editors

Franks J;Seth G;Sussman O;Vig V


Publication Year



The paper measures the inefficiencies associated with fire sales in the airlines industry. We find evidence that fire sale discounts have been significantly overstated owing to under-maintenance and quality impairment of aircraft sold by distressed airlines. Using productivity data, the paper provides evidence that the bankruptcy process allows reallocation of distressed aircraft from low productivity to high productivity operators, suggesting a bankruptcy process that has a cleansing effect on the industry, rather than one of misallocation. The inclusion of the quality adjustment significantly reduces fire sale discounts on the sale of distressed aircraft, and the differences between Chapter 11 and Chapter 7 sales largely disappear. The results suggest that the welfare costs associated with fire sales might be significantly lower than those documented in prior studies.


Working Paper

Available on ECCH


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