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    Blue Sky Airlines: selling an option to existing shareholder

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    Construct a one-page document "selling" your chosen option to your existing shareholders and bondholders based on the merits of your plan, in comparison to the short-term or long-term shareholder value of rest of the alternatives.

    Consider that Blue Sky Airlines has the following options:

     The government has offered a potential "gift" to cover the incremental cost of fuel. This is an elimination of a 6% fuel excise tax as well as an interest-free $100 million gift in return for agreeing to purchase only US-manufactured aircraft over the three-year period with no reduction in aircraft cost financed by an additional debt at 10%.

     The company has been offered a fuel-hedging program that involves a one-time investment of $10 million but guarantees a 4% annual price increase in operating costs.

     The company has been offered a 5-year union contract for no wage increases in return for a guarantee of no reduction in jobs.

     The company has been offered a 10% reduction in the cost of a planned $600 million aircraft order by a foreign supplier financed by debt at 10%. Alternatively the company can forego buying new aircraft but incurs a 10% higher ongoing cost in fuel and labor.

     The company has the option to create a low-cost structure that will replace its existing labor structure. This involves taking the company to bankruptcy to void union contracts, reduces overall labor costs by 25% but involves a 40% premium in ongoing debt expense.

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    Solution Preview

    The response addresses the queries posted in 441 Words, APA References
    Shareholder's Value: Long term and Short term Period

    The first option, that is to accept the Government's potential gift to cover the incremental cost of fuel, is best for the shareholders of the Blue Sky Airlines because it will cause for the decrease in the fuel costs by 6%. The main problem that is faced by the aviation industry is the increase in the fuel prices. The price of the fuel for the aircrafts is increasing that is causing less benefits and an increase in the cost of the airlines (US Airlines Face Billions in Extra Fuel Costs, 2005).

    Merits of the Option

    This option is providing ...

    Solution Summary

    The response addresses the queries posted in 441 Words, APA References