Case | HBS Case Collection | November 1993 (Revised April 2007)

Continental Airlines--1992 (Abridged)

by Stuart C. Gilson

Abstract

The CEO is preparing a recommendation to the board regarding several potential outside investments in the company, which is currently operating in bankruptcy. In making his decision, the CEO has to consider various financial and strategic factors, including possible synergy benefits and support for the company's huge planned expenditures on new aircraft. To assess the relative merits of the competing investment proposals, it is also necessary to value the company's assets and prescribe a new capital structure for the company after it leaves Chapter 11. Tax factors are extremely important in the analysis. The final decision must be acceptable to the company's creditors and be compatible with allowed U.S. bankruptcy practices.

Keywords: Capital Structure; Cash Flow; Cost of Capital; Insolvency and Bankruptcy; Investment; Taxation; Risk and Uncertainty; Valuation; Aerospace Industry; United States;

Citation:

Gilson, Stuart C. "Continental Airlines--1992 (Abridged)." Harvard Business School Case 294-058, November 1993. (Revised April 2007.)