Predicting airline bankruptcy… 1 Predicting Airline Corporate Bankruptcies Using a Modified Altman Z-Score Model Abstract The airline industry plays an important role in the global economy, but faces financial challenges. Numerous firms have filed for bankruptcy protection or have liquidated completely, each time having a devastating effect on the company’s stakeholders. The objective of this study was to compare a traditional bankruptcy prediction model with a proposed alternative model, with the goal of identifying a means of predicting the combinations of characteristics present when an airline that is likely to fail. The alternate model proved to be more accurate than the traditional model in predicting bankruptcy, providing improved forecasting up to four years prior to the bankruptcy filing date. Airlines can use this model to deploy corrective measures to alter the firm’s underlying problems, redefine strategies, and avoid bankruptcy, while investors can use this model to avoid or reduce investments in questionable firms that cannot be salvaged. Keywords: bankruptcy prediction, airline industry, Altman Z-Score model, multiple discriminant analysis, financial distress , ratio analysis Introduction Between 2001 and 2011, the U.S. airline business suffered $10 billion in losses (NPR, 2011) ref ) . The industry in aggregate lost over $60 billion in the thirty-two years following deregulation in 1978. Legacy airlines have had a particularly hard time. Since 1998, ten large North American airlines have filed for bankruptcy: Air Canada; American; ATA [American Trans Air]; Delta; Frontier; Hawaiian; Northwest; TWA [Trans World Airlines]; US Airways; and United. TWA is no longer operating; it flew its last official flight on December 1, 2001. ATA ceased operations in 2008. America West acquired US Airways, which then merged with 1