Abstract

The year 2014 turned out to be a significant one for the global airline industry. The missing Malaysia Airlines flight MH370, the shooting down of Malaysia Airlines flight MH17, the disappearance of Air Algérie flight AH5017 and most recently the crash of Air Asia flight QZ8501 have raised great concerns about airline safety. In this paper, we investigate whether financial factors influence an airline's maintenance, purchasing, and training policies, and ultimately its safety performance. Using global data from 110 airlines in 26 countries over the period 1990 to 2009, we find an inverse relationship between profitability of air carriers and their accident propensity. Other financial variables such as liquidity, asset utilization, and financial leverage do not appear to affect an airline’s safety record. Moreover, we find that the legal and economic environment of a given country has a significant effect on airline safety. Specifically, airlines in countries with strong law enforcement, more stringent legal regulations, and better economic performance have better safety performance.