ABSTRACT
The industry has been able to generate only about half of its capital needs from internal cash flow and, the rest through issuing bonds and stocks. The chapter explores the cost of raising capital and how to estimate these costs. Since the airline industry is highly capital-intensive and cyclical, an examination of an airlines' capital structure is critical to understanding the macro financial position of an individual airline. Capital projects are usually funded through three different means: issuance of equity, issuance of debt, or cash obtained through the reinvestment of profits. The cost of preferred stock is similar to the cost of common stock with constant dividends as preferred stockholders receive a fixed dividend from the company into perpetuity. Capital is extremely important in the airline industry. Airlines must have sufficient capital in order to maintain cash on hand and investment in infrastructure and equipment.
