Global Wings Airlines (GWA) is a publicly traded, Atlanta based airline. GWA is expanding its offering of flights to Western Europe. To facilitate this expansion GWA needs additional capital. Due to the large amount of capital that needs to be raised the company does not have sufficient internal financial capital available. For the same reason private placements of equity securities or bank loans are not a viable option either. The company is considering a new offering of common equity securities

Assume you are a team of analysts who follow this company and industry. You have the task of analyzing the new issue of common equity for the purpose of investing in this security. Consider the company and industry. Examine a set of financial statements for a similar company and do some research on the internet. (Do not use Customer Satisfaction ratings.) Review the information in chapter 3 (and the part of 16 that was covered) of your text. Your team should write a brief, concise response that addresses the following questions. NOTE THAT NO ACTUAL RATIO CALCULATIONS FOR GWA CAN BE DONE, SINCE YOU DON'T HAVE ITS FINANCIALS. You are to layout a model for the analysis.

1. Develop a ratio analysis model you would apply to analyze the companys common equity. Here are the guide lines for this ratio analysis model: The model should consist of a table with ratios, benchmarks, etc. and rationale below it. Considering the five categories of financial ratios, select a set of up to ten financial ratios. Group them into the 5categories and present them in a table. Below the table describe briefly why you selected these ratios instead of others. Your rationale should relate to the business operations. Show how and what you would compare these ratios to. What would you be your target for these ratios? This could e.g. be a precise number or a number higher or lower than or simply as high or as low as possible.
2. Now that you have decided which financial ratios to include in your model and you have selected benchmarks for these ratios to compare to and draw conclusions, you wonder about using a Luftwings as a benchmark. Luftwings is a European airline, headquartered in Frankfurt, Germany. You are interested in it, because it seems this company has a similar strategy and operating methods as GWA. You are a bit worried about how this could complicate your analysis, if you calculated ratios from Luftwings financial statements to use for comparison to GWAs ratios. How could the use of a foreign airlines financial statements complicate your analysis? Do some internet research on this topic and discuss it in your teams. Provide a summary of key points with explanations in your report.
3. Equity analysts have different objectives and goals than debt analysts. Think about and discuss in your group what the difference of focus would be between equity and debt analysis. Assume in this scenario that the company would have been able to finance its expansion by negotiating a loan through an Atlanta based bank and you were the financial analyst/credit analysts at the bank. Describe any changes you would make in your ratio analysis model under 1. above to account for different needs for different types of investors, if you were a (debt or) credit analyst for this companyinstead of an equity analyst.
4. Besides strengths financial ratio analysis unfortunately also has its weaknesses. Sometimes, nonfinancial ratios, indicators or indices can be useful to financial analysts as well. Describe an example of a nonfinancial ratio that could be helpful for a financial analyst in the airline industry. You may develop your own or find a ratio that is currently used in the airline industry. Why would this ratio be helpful? (There is a whole web site on this topic!)
5. Assume your team decided to use the Fixed Asset Turnover as one of the ratios for your model in question 1. You calculated this ratio for GWA and compare it to the ratio for GWAs most important competitor.
   1. Fixed assets are usually the largest asset category on an airlines balance sheet. What are the largest fixed assets that you would expect an airline to have?
   2. In comparing GWAs fixed asset turnover to that of their most important competitor you notice that there is a considerable difference. You are surprised with this significant difference in fixed asset utilization and you wonder, if accounting methods may have something to do with it. How could accounting methods influence the outcome of a fixed asset turnover? Provide a specific answer with illustration.
6. Another way to compare ratios is to compare the companys ratios over time. You decide to compare GWAs ratios as you selected them from calendar year 2020 with those of calendar year 2021. Explain how the economic conditions in the US and the industry may influence the outcome of the ratios you have selected.
7. GWA is also considering adding more destinations in the Northeast of the United States from its Atlanta and Memphis hubs. In the short term GWA would diversify its travel destinations within the continental United States for current customers. In the long term it would offer shorter intercontinental flights to its new destinations in Western Europe. Currently it has no flights to the Boston/New York area, yet this would be a very large market for the new European destinations. The CEO has developed a creative way of offering these flights to the Northeast without having to purchase gates at expensive destinations there or having to purchase additional aircraft. The CEO proposed to a partnership with a small regional carrier called Northeast Express Airlines (NEA). GWA would use its marketing and online booking system offering flights to the Northeast. However, the flights would be operated by NEA using NEA aircraft. The NEA aircraft would be painted with the GWAs logo and colors. NEA would continue to own the aircraft, pay all expenses related to the flights and receive all revenues from airfares for these flights. In exchange NEA would pay GWA a fee per passenger booked on one of these flights. It would be a seamless integration through the eyes of the consumer. The CEO refers to NEA as its first franchisee, hinting that this model may be used more often for future domestic expansion. What would be the impact on the financial ratios in all five ratio categories, if the company followed this franchise financing plan rather than obtaining financing through a bond issuance in the capital markets (and purchasing its own aircraft) to expand to the Northeast?