ABSTRACT
This chapter discusses the issues in depth and provides both qualitative and quantitative solutions, and clarification of problems associated with the management of new assets and liabilities. The role of cash was highlighted as the most important new asset to manage in order to meet new liabilities. Developing a working capital policy is crucial to maintaining adequate reserves of assets in order to pay liabilities. The airline industry is extremely susceptible to economic shocks and political events, hence the availability of liquid assets requirement to survivability. Transactions’ demand for money is positively related to the level of business activity and, the bigger the airline, the greater the need for cash. Transaction motive is the amount of cash held by individuals or corporations for salaries, purchase of raw materials or other business activities. The economic order quantity model is a generalized version of the Baumol model and is also appropriate for different types of inventory as well as cash.
