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Revisiting the asset fire sale discount: evidence from commercial aircraft sales


Finance, Finance

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Authors / Editors

Franks J;Seth G;Sussman O;Vig V


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Using a sample of commercial aircraft transactions, the paper decomposes the raw fire sale discount on sales of aircraft by distressed airlines into three components: (i) quality impairment due to under- maintenance, (ii) misallocation to lower productivity users, and (iii) a liquidity component due to the immediacy of the sale. Results indicate that financially distressed airlines sell aircraft that have a lower life expectancy and lower productivity. The quality impairment adjustment can explain around one half of the raw liquidation discount. For the remaining discount, we find no direct evidence of misallocation to lower productivity users and industry outsiders. In contrast to Pulvino (1998), we find financial buyers (leasing companies) act as intermediaries and improve the allocation of aircraft to efficient operators. In summary, our results indicate that the inefficiencies associated with fire sales are likely to be lower than have been previously documented.



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