Airline groups centered in the European market survive or stumble less because of how quickly they collect receivables and pay suppliers, and more because of how much debt they carry. That is the central message of a new panel-data study published in European Transport Research Review, which tracked fourteen major passenger airline groups and airlines annually from 2010 to 2024 and measured financial sustainability through two complementary lenses: operating cash flow relative to total assets, and the interest coverage ratio, which captures a firm’s capacity to meet its interest payments.
The headline result concerns leverage. In the operating cash flow model, increases in the debt-to-assets ratio were negatively and significantly associated with cash generation at the 5 percent level. In the interest coverage model, the effect was stronger still: rising leverage significantly weakened debt-servicing capacity at the 1 percent level. The authors conclude that capital structure, particularly leverage, is the most consistent determinant of financial sustainability in this capital-intensive industry, and they suggest managers treat sustained increases in leverage as an early warning signal of eroding resilience.
Working capital, by contrast, played a quieter role in stable times. Changes in the cash conversion cycle, the aggregate measure summarising how long cash is tied up in operations, showed no statistically significant effect on operating cash flows, and only a marginally significant positive association with interest coverage in the baseline specification. The authors interpret this cautiously, noting that airlines may temporarily improve interest coverage by lengthening their operating cycles through more lenient credit terms or delayed payments, practices that could carry longer-term liquidity risks. Working capital financing strategy showed a positive, weakly significant link with operating cash flow, while revenue growth was also weakly positive.
An expansion of the operating cycle during the pandemic significantly weakened interest coverage, an effect that was highly significant statistically, whereas no comparable shift appeared for operating cash flow performance. In other words, the cash conversion cycle mattered little in calm periods but became critical during the crisis, when longer operating cycles significantly undermined airlines’ ability to service debt. The influence of working capital financing also changed significantly under pandemic conditions.
Heterogeneity across business models proved equally striking. Splitting the sample into full-service and low-cost carriers, the analysis found that for legacy carriers a longer cash conversion cycle significantly reduced operating cash flow performance, while working capital financing contributed positively. Among low-cost carriers, operating cash flow was instead associated with asset structure and working capital financing, and changes in the cash conversion cycle were not statistically significant. For debt-servicing capacity, the cash conversion cycle showed opposite signs across the two groups: it negatively affected interest coverage for legacy carriers but positively for low-cost carriers. Working capital investment mattered only for legacy carriers, and revenue growth only for low-cost carriers.
Liquidity conditions also moderated the results. The relationship between the cash conversion cycle and interest coverage varied with firms’ liquidity positions: a longer operating cycle weakened debt-servicing capacity under relatively lower liquidity, but this adverse effect became less pronounced as liquidity improved. The authors suggest that stronger liquidity buffers can mitigate the damage that less efficient working capital management inflicts on debt-servicing capacity, a finding with obvious relevance for regulators weighing balance-sheet resilience against short-term profitability metrics.
Robustness checks reinforced the core findings. Re-estimations with winsorised data left the leverage and revenue growth effects stable, and specifications using one-period lagged explanatory variables produced weaker and largely insignificant coefficients, suggesting the baseline relationships capture contemporaneous balance-sheet adjustments rather than persistent dynamic effects. The authors acknowledge limitations: the European focus reflects data availability and regulatory harmonisation, so generalisation to other institutional settings requires caution, and reliance on accounting-based indicators and observational panel methods cannot fully eliminate endogeneity concerns.
The broader takeaway is that financial fragility in aviation is governed less by the fine-tuning of receivables and payables than by the weight of debt on the balance sheet, with working capital management acting as a state-dependent amplifier that matters most when demand collapses. For managers, the study points to contingency-oriented working capital frameworks that can be deployed rapidly during crises, including supplier renegotiation and access to revolving credit, alongside continuous monitoring of leverage relative to the firm’s own history and comparable groups. For regulators, the evidence supports supervisory frameworks and state-aid mechanisms that emphasise balance-sheet resilience and business-model-specific financial policies rather than a uniform approach across the sector.
Subject of Research: How working capital management and financial structure affect financial sustainability in European-centered airline groups
Article Title: How working capital management affects financial sustainability in airline groups centered in the European market
Article References: Yildiz, B., & Oner, G. (2026). How working capital management affects financial sustainability in airline groups centered in the European market. European Transport Research Review, 18(1), Article 101. https://doi.org/10.1186/s12544-026-00865-7
Image Credits: AI Generated
DOI: 10.1186/s12544-026-00865-7
Keywords: airlines, working capital management, leverage, financial sustainability, cash conversion cycle, interest coverage ratio, operating cash flow, COVID-19, low-cost carriers, full-service carriers, panel data, European aviation
News Source: Sloane Callahan. (October 29, 2026). Research report: How working capital management affects financial sustainability in airline groups centered in the European market. Scienmag.
