In the late 1970s, Laker Airlines was developing strongly as a UK provider of package tour holidays and also flights for other tour operators. The company had grown significantly under the direction of Freddie Laker, an ebullient entrepreneur who had a vision of mass travel and sought to develop cheap foreign holidays as part of the British way of life. The bulk of Laker Airlines activity involved flying UK holidaymakers to foreign destinations in Europe, North Africa and North America. Lakers success was phenomenal, and as a result the existing fleet of aircraft was no longer adequate to meet the booming business. New aircraft were needed, and Sir Freddie, as he was known following receipt of a knighthood, had to decide what to do. The US-based aerospace manufacturer McDonnell Douglas was busy looking for buyers for its new wide-bodied jet, theDC10, and was willing to let Laker Airways have five on attractive credit terms. This involved Laker Airlines financing their purchase by taking out a low-cost loan in US dollars.

The airline decided to purchase the planes using the buyer finance made available by McDonnell Douglas. But what were the consequences from a financial risk management perspective?

Undertake a qualitative risk assessment exercise on the situation that Laker Airlines had got itself into. You are not required to quantify the results. You may find that using a diagram is helpful. You should aim to break down the risks into their individual risk factors and where possible group them into risk hierarchies and also try to determine the possible interactions between the various individual risks.