Max Feldman, a 39-year-old professor at Moscow State University, was planning to visit Western University in London, Ontario, for four months to work on a collaborative research project in financial analysis. He had already purchased his tickets for a convenient non-stop flight from Moscow to Toronto with OJSC Transaero Airlines (Transaero). In September 2015, news broke about the possible bankruptcy of Transaero, the safest and second-largest airline company in Russia, catching most people by surprise. Feldman needed to decide whether or not to cancel the tickets he had booked and fly with a different airline.

Transaero, one of Russia's largest private companies, was established in 1990 by Aleksandr Pleshakov and his mother, Tatiana Anodina. Anodina had been the head of the Interstate Aviation Committee, the supervisory body overseeing aviation in the Commonwealth of Independent States (CIS). Aleksandrs father, Peter Pleshakov, was the Soviet Unions minister of radio industry from 1974 until 1987. Olga Pleshakova, the chief executive officer (CEO) of Transaero from 2001 to 2015, was the CEO of Transaero from 2001 to 2015.

Transaero focused on fleet renewal and increased its efficiency. From 2010 to mid-2013, Transaero was expanding its fleet, increasing the number of operated aircraft from 47 to 100. As Feldman studied Transaeros 2013 annual report, he noticed that Transaero had more than 200 routes, with 44% being in Europe and 28% in Russia and CIS. That year, the airline and airport review website Skytrax had named Transaero among the Worlds Top 100 Airlines. The number of passengers it had carried in 2013 totalled 12.5 million, an increase of 21.04 per cent from the total number of passengers in 2012.

Transaeros total revenue in 2013 had increased by 14.81 per cent from its revenue in 2012. The company's passenger turnover grew by 47 times from 2003 to 2013, air freight transportation went up by 25 times, and the companys fleet expanded by 16 times. New partnerships with international airlines such as Virgin America, WestJet, JetBlue Airways, and China Airlines were established.

Transaero as a company and its employees believed in using the airlines success to give back to society. According to the companys 2013 annual report, Transaero was the only Russian airline company to achieve a Triple A (or AAA) rating for corporate social responsibility. The companys charitable programs included social air transportation, childrens health care, and assistance for persons with disabilities. Three fundamental principlesconsistency, partnership, and transparencyguided the companys charitable programs.

In 2014 and 2015, Transaero started 2014 in a strong position, with key positive events in the first half of the year including Air Transport World ranking Transaeros passenger traffic 27th in the world, receiving a Certificate of Merit from the Federal Air Transport Agency, encouraging employees to become blood donors, and having its Imperial Class be among the worlds top 20 firstclass cabins. However, the situation changed for Transaero in the second half of 2014, making it a very difficult year for the airline.

Transaero applied for and was granted a state guarantee from the government of the Russian Federation for a RUB9 billion credit facility from VTB Bank, a global provider of financial services. This guarantee helped Transaero retain some financial stability despite the collapse of the ruble and the high volatility of domestic sales in Russia. The new credit guarantee allowed Transaero to add two additional social responsibilities: avoiding employee job loss and maintaining affordable domestic flights by freezing fares within Russia. Competitors viewed the latter action as dumping. In 2015, customers began to purchase more tickets in advance, resulting in an increase in unearned revenue.

In 2015, Transaero was ranked among the top 20 safest airlines in the world according to JACDEC's airline safety ranking. However, the weakening ruble led to increased financing costs related to foreign currency loans and limited access to international capital markets for Russian banks. Transaero focused on reducing operating expenses and costs related to fleet repairs and modifications, optimizing flight schedules, and improving customer relationship management systems and websites. Global management consultants McKinsey & Company CIS assisted with the development and adoption of "Better and Cheaper" as a business improvement program for 2015.

Despite these challenges, Transaero managed to increase both the number of passengers carried and revenue in 2014, while total operating costs per flight decreased by 10.3%. The company's seat occupancy rate was above 82% during 2011-2013, higher than PJSC Aeroflot Russian Airlines' (Aeroflot) and the industry as a whole. In 2014, load management at Transaero was equally efficient, with the load factor remaining at 84%.

A serious problem emerged from Feldman's analysis of Transaero's statements: incorrect financial reporting data according to RAS and the largest part of intangible assetsTransaero's brandwas recognized in the financial statements under IFRS. This error created a large but short-term bump in the intangibles account and affected the dynamics of the deferred tax account on the balance sheet, causing a deferred tax liability in 2014 and a deferred tax asset in 2015.

In the second half of 2015, Transaero faced new events, including the resignation of Aleksandr, Olga, and Anodina, Aeroflot's attempt to acquire a controlling stake in Transaero, and the interest of top management of the third-largest Russian airline company, PJSC S7 Airlines, in purchasing 51% of Transaero's shares.

Pan American World Airways (Pan Am), once the largest U.S. airline, faced significant challenges in the 1970s. The company's collapse began in 1969 when it received a large shipment of Boeing 747s, leading to a downturn and reduced demand for passenger flights. The 1973 oil crisis further exacerbated the situation, with soaring fuel prices and reduced air travel demand. Pan Am's losses for 1969-1976 totaled $364 million, and its debt grew to billion dollars. In 1985, United Airlines acquired all Pan Am's routes to the Asia-Pacific region. Two terrorist attacks in 1986 and 1988 further impacted the company's business. The Gulf War fuel crisis in 1990-1991 led to Pan Am declaring bankruptcy, causing its debt to reach $9 billion. Delta Air Lines Inc. acquired the remaining profitable assets, but subsequent attempts to revive the brand failed. The bankruptcy of Delta did not save Delta from the same fate. The story highlights the challenges faced by airlines like Pan Am and Delta in the aviation industry.

Delta Airlines experienced a significant financial loss due to a drop in demand, an increase in oil prices, and the rise of low-cost competitors. In 2004, the company attempted to avoid bankruptcy by conducting mass layoffs and reducing salaries, but the measures failed, leading to its bankruptcy on September 14, 2005. The company had $20.5 billion in debt at the time. However, two years later, the court approved the carrier's plan to exit bankruptcy, and old shares were cancelled and new ones began trading on the New York Stock Exchange at $20 per share.

In Europe, Swissair declared bankruptcy in 2001 after 70 years in business. The airline's decision to create a new air alliance led to the creation of the "Qualiflyer" alliance, which brought together more than 20 airlines. However, constant subsidizing of less-fortunate partners depleted Swissair's resources, and the aviation crisis following the September 11 attacks ultimately ended the company. The carrier's debt at the time of bankruptcy exceeded CHF38 billion.

Alitalia, Italy's national carrier, declared bankruptcy in 2008, and was sold to French airline Air France, Dutch airline KLM Royal Dutch Airlines, and German airline Lufthansa. However, Silvio Berlusconi interrupted the deal, arguing that the company must remain national. Under Berlusconi's leadership, the Italian Parliament adopted a law on the bankruptcy of state companies, costing the country 5-6 billion. Alitalia's losses were written off in 2013, but the alliance refused to participate in further capital increase.

From his academic and practical experience, Feldman knew that airline companies often have high financial leverage and high operating leverage, which creates enormous risks during macroeconomic crises. He analyzed the financial data of Transaero, Aeroflot, JSC UTair Aviation, and Croatia Airlines Ltd. to determine if it was possible for Transaero to avoid problems in 2015 without support from the Russian government. He identified the most important events that influenced Transaero's problems, such as an increase in oil prices, the introduction of international sanctions, and the decline in the ruble's exchange rate against the U.S. dollar.

Feldman, a passenger, was concerned about the potential bankruptcy of Transaero, a Russian airline. He knew that customers were rarely protected against bankruptcies in Russia, and it would be impossible to refund tickets sold to customers if the company was dissolved. He had to decide whether to cancel his flights and re-book with another airline, as he might lose both his flight and his money if he waited. Feldman looked through Transaero's reports and online data again, wondering if it was possible for Transaero to avoid bankruptcy or, if not, to recover from it.

Transaero implemented several charitable programs, including Back to the Future, Flight of Hope, Flying with Disabilities, Flying without Fear, Travelling to the Transaero Country, and Veterans. These programs were comprehensive in nature and implemented following three fundamental principles: consistency, partnership, and transparency. Back to the Future helped approximately 3,500 children with serious illnesses at all stages, while Flight of Hope enabled passengers to make donations during flights for the treatment of children suffering from serious illnesses.

Transaero also continued training sessions for its employees and airport employees in Moscow and other cities to accommodate and communicate with disabled passengers. In 2014, Transaero carried 100 sports fans with disabilities to the world's largest winter Paralympic competition and organized a flight for Ladoga, Europe's only junior sledge hockey team, to the United States.

Flying without Fear aimed to make the flight experience comfortable for all passengers by creating an in-flight video-based course specially designed for those who experienced aerophobia or anxiety during flight. Travelling to the Transaero Country organized charity events to support the rehabilitation of disabled children, social adaptation of orphaned children, and awareness campaigns to promote charitable ideas among employees and educational projects for Transaero corporate volunteers.

In 2014, Transaero provided air transportation services to veterans on Victory Day, offering discounts on tickets for over 1,000 World War II veterans, survivors of the Leningrad siege, prisoners of fascist concentration camps, and rear workers eligible for benefits.

1. Intro: Summary of the case

2. Problem: what is the problem or question

3. Your comments or suggestions

EXHIBIT 1: TRANSAERO FINANCIAL STATEMENTS (A) Transaero Income Statement (in RUB millions) (B) Transaero Balance Sheet (in RUB millions) EYHIRIT 1 IRI CONTINIIEN Note: EBIT = earnings before inferest and tax. If the denominafor is less than or equal to zero, the rafio was shown as NM (not meaningtal). Source: Aerdhot - Russian Adlines, "Public Joint Stock Company Aerofot - Ruzsian Adines (MISXX:AFLT) > Financlals > Ratios," 2017; Airlines, "European Emerging Mankets > Key Stats 8 Fatos," ssP Capilal 10, acoessed Febnury 16, 2017. EXHIBIT S: AIRCRAFT INFORMATION EYHIRIT 1 IRI CONTINIIEN EXHIBIT 1 (B) CONTINUED \begin{tabular}{|c|c|c|c|c|c|} \hline For the Fiscal Period Ending & \begin{tabular}{|c|} 12 months \\ Dec. 31, \\ 2011 \end{tabular} & 12monthsDec.312012 & \begin{tabular}{|c|} 12 months \\ Dec. 31, \\ 2013 \\ \end{tabular} & 12monthsDec.31,2014 & 12monthsJun.30,2015 \\ \hline Net Income & 2,192.1 & (228.0) & (13,341.1) & (14,463.0) & (7,192.1) \\ \hline Depreciation \& Amorfization & 1,632.3 & 2,637.1 & 3,289.4 & 2,819.7 & 3,088.4 \\ \hline (Gain) Loss from Sale of Assets & = & = & (1,835.3) & (1,452.1) & (1,452.1) \\ \hline Provision \& Write-Off of Bad Debts & - & - & (82.6) & (167.7) & (167.7) \\ \hline Other Operating Activities & (3,314.5) & 893.1 & 8,530.5 & 20,284.2 & 16,004.4 \\ \hline Change in Accounts Receivable & - & - & 16,389.2 & (11,207.5) & (11,207.5) \\ \hline Change in lmventories & - & & (2,507.7) & (1,284.2) & (1,284.2) \\ \hline Change in Acoounts Payable & - & - & (197.7) & 14,277.9 & 14,277.9 \\ \hline Change in Other Net Operating Assets & = & - & (1,817.8) & (2,238.7) & (2,238.7) \\ \hline Cash from Operations & 509.9 & 3,302.2 & 8,426.9 & 6,568.6 & 9,828.4 \\ \hline Capital Expenditure & (18,059.8) & (6,751.2) & (11,941.0) & (2,731.8) & (1,177.2) \\ \hline Sale of Property, Plant, \& Equipment & 9.2 & 251.0 & 1,406.5 & 4.9 & (57.5) \\ \hline Cash Acquistions & - & 87.9 & = & - & = \\ \hline Divestitures & - & = & - & & (126.1) \\ \hline InvestmentsinMarketable&EquitySecurifies & 2.0 & (65.6) & (18.8) & 2.3 & (1,978.8) \\ \hline Other Investing Activities & 65.5 & 46.8 & (2,007.6) & 1,551.1 & 1,554.6 \\ \hline Cash from Investing & (17,983.2) & (6,431.2) & (12,561.0) & (1,173.5) & (1,785.0) \\ \hline Long-Term Debt lssued & 50,772.0 & 49,022.1 & 77,172.1 & 78,053.6 & - \\ \hline Tatal Debt issued & 50,772.0 & 49,022.1 & 77,172.1 & 78,053.6 & 54,121.4 \\ \hline Long-Term Debt Repaid & (28,129.7) & (39,593.0) & (64,188.9) & (68,668.7) & = \\ \hline Total Debt Repaid & (28,129.7) & (39,593.0) & (64,188.9) & (68,668.7) & (46,842.0) \\ \hline Issuance of Common Stock & 2,885.4 & 700.0 & 4,798.6 & 4,044.8 & 1,806.2 \\ \hline Repurchase of Common Stock & (1,150.7) & (1,303.5) & (2,926.1) & (5,979.0) & (2,631.2) \\ \hline Common Dividends Paid & (24.1) & (57.7) & (69.6) & (106.5) & (106.5) \\ \hline Other Financing Activities & (6,118.4) & (8,324.0) & (9,810.3) & (13,637.6) & (14,822.0) \\ \hline Cash from Financing & 18,234.5 & 443.9 & 4,975.8 & (6,293.5) & (8,474.0) \\ \hline Net Change in Cash & 761.2 & (2,685.1) & 841.8 & (898.4) & (430.7) \\ \hline \end{tabular} Note: EBIT = earnings before inferest and tax. If the denominafor is less than or equal to zero, the rafio was shown as NM (not meaningtal). Source: Aerdhot - Russian Adlines, "Public Joint Stock Company Aerofot - Ruzsian Adines (MISXX:AFLT) > Financlals > Ratios," 2017; Airlines, "European Emerging Mankets > Key Stats 8 Fatos," ssP Capilal 10, acoessed Febnury 16, 2017. EXHIBIT S: AIRCRAFT INFORMATION EXHIBIT 1 (B) CONTINUED \begin{tabular}{|c|c|c|c|c|c|} \hline For the Fiscal Period Ending & \begin{tabular}{|c|} 12 months \\ Dec. 31, \\ 2011 \end{tabular} & 12monthsDec.312012 & \begin{tabular}{|c|} 12 months \\ Dec. 31, \\ 2013 \\ \end{tabular} & 12monthsDec.31,2014 & 12monthsJun.30,2015 \\ \hline Net Income & 2,192.1 & (228.0) & (13,341.1) & (14,463.0) & (7,192.1) \\ \hline Depreciation \& Amorfization & 1,632.3 & 2,637.1 & 3,289.4 & 2,819.7 & 3,088.4 \\ \hline (Gain) Loss from Sale of Assets & = & = & (1,835.3) & (1,452.1) & (1,452.1) \\ \hline Provision \& Write-Off of Bad Debts & - & - & (82.6) & (167.7) & (167.7) \\ \hline Other Operating Activities & (3,314.5) & 893.1 & 8,530.5 & 20,284.2 & 16,004.4 \\ \hline Change in Accounts Receivable & - & - & 16,389.2 & (11,207.5) & (11,207.5) \\ \hline Change in lmventories & - & & (2,507.7) & (1,284.2) & (1,284.2) \\ \hline Change in Acoounts Payable & - & - & (197.7) & 14,277.9 & 14,277.9 \\ \hline Change in Other Net Operating Assets & = & - & (1,817.8) & (2,238.7) & (2,238.7) \\ \hline Cash from Operations & 509.9 & 3,302.2 & 8,426.9 & 6,568.6 & 9,828.4 \\ \hline Capital Expenditure & (18,059.8) & (6,751.2) & (11,941.0) & (2,731.8) & (1,177.2) \\ \hline Sale of Property, Plant, \& Equipment & 9.2 & 251.0 & 1,406.5 & 4.9 & (57.5) \\ \hline Cash Acquistions & - & 87.9 & = & - & = \\ \hline Divestitures & - & = & - & & (126.1) \\ \hline InvestmentsinMarketable&EquitySecurifies & 2.0 & (65.6) & (18.8) & 2.3 & (1,978.8) \\ \hline Other Investing Activities & 65.5 & 46.8 & (2,007.6) & 1,551.1 & 1,554.6 \\ \hline Cash from Investing & (17,983.2) & (6,431.2) & (12,561.0) & (1,173.5) & (1,785.0) \\ \hline Long-Term Debt lssued & 50,772.0 & 49,022.1 & 77,172.1 & 78,053.6 & - \\ \hline Tatal Debt issued & 50,772.0 & 49,022.1 & 77,172.1 & 78,053.6 & 54,121.4 \\ \hline Long-Term Debt Repaid & (28,129.7) & (39,593.0) & (64,188.9) & (68,668.7) & = \\ \hline Total Debt Repaid & (28,129.7) & (39,593.0) & (64,188.9) & (68,668.7) & (46,842.0) \\ \hline Issuance of Common Stock & 2,885.4 & 700.0 & 4,798.6 & 4,044.8 & 1,806.2 \\ \hline Repurchase of Common Stock & (1,150.7) & (1,303.5) & (2,926.1) & (5,979.0) & (2,631.2) \\ \hline Common Dividends Paid & (24.1) & (57.7) & (69.6) & (106.5) & (106.5) \\ \hline Other Financing Activities & (6,118.4) & (8,324.0) & (9,810.3) & (13,637.6) & (14,822.0) \\ \hline Cash from Financing & 18,234.5 & 443.9 & 4,975.8 & (6,293.5) & (8,474.0) \\ \hline Net Change in Cash & 761.2 & (2,685.1) & 841.8 & (898.4) & (430.7) \\ \hline \end{tabular} EXHIBIT 1: TRANSAERO FINANCIAL STATEMENTS (A) Transaero Income Statement (in RUB millions) (B) Transaero Balance Sheet (in RUB millions)