iscover
Compass executives proudly accept the first MD-80 twinjet at Long Beach California, August 4 1992. The airline had the right product but like the original Compass much of its meagre cash reserves had been exhausted by the time the first service had left the jetway. (Jim Thorn)
Compass Collapse Analysis
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Compass Failure Highlights Need For Adequate Capital Base
The unexpected collapse of Compass Airlines has more than ever highlighted the need for new airlines to have adequate capitalisation prior to launch.
Compass II went to the jetway after a float which saw just 54% ofthe 100 million 50c shares on offer taken up by investors. The combination of a worsening recession, the highly publicised ills of the airline industry both here and abroad and a moribund period in the sharemarket’s life cycle all served to ensure that the float of Compass II was to share nothing of the fervour and excitement that accompanied its predecessor nearly two years earlier.
Fortunately though for Southern Cross Airlines Holdings Ltd, the ‘owners’ of Compass II, the $50m float had been fully underwritten by highly respected stockbroking firm, JB Were &; Sons. An additional loan brought Compass II’s total liquidity to a theoretical $59m though much of this was soon to disappear for reasons not fully appreciated by senior Compass management prior to commencing airline operations on August 31 last year.
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