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Essay on Fly by Night

Decent Essays
Fly By Night

Fly By Night International was founded by Douglas C. Mather in the mid 1970's. He started the company as a pilot training school. Then he branched out into government contracting. He used his “rent-an-enemy” fleet to the Navy and Air Force for use in fighter-pilot training. The company experienced great success during the first five years of its operations and the stock price almost doubled. However, in year 14 the company started a rapid descent. The company did not have enough cash flow to service its debt. Furthermore, the company found material misstatements in their financial statements. After analyzing the financial statements of the company it has become clear the causes of the cash flow problems. a. An
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The cash flows from investing shows the company has made very large investments in property, plant and equipment. The cash flows from financing shows that the repayment on account of borrowings has been financed by either another loan or by issuance of share capital. The following amounts are in thousands.
Year Cash Flow – Operations Cash Flow - Investing Cash Flow – Financing
Year 10 $4,231 ($20,911) $17,241
Year 11 $1,693 $15,284 ($17,588)
Year 12 $2,111 ($5,437) $3,498
Year 13 $16,902 ($52,897) $36,247
Year 14 $9,883 ($34,260) $23,953
The cash flow situation started falling from the end of year 12. The company should have known from this.

b. The company may be able to avoid bankruptcy but it will be hard. They will need to do several things.
Usually in corporations there is a clear distinction between the people who take critical decision – Board of Directors – and the people who actually execute the decisions – management. In FBM, many managers were also part of the Board. This arises conflicts of interest. This should be avoided.
The company was too reliant on orders from the US Government. They need to expand its operations into other areas.
The company entered into dubious transactions, especially with Doug Mather. This helped contribute to the cash flow problems. The company needs to avoid these transactions in the future.
The company needs to decrease its
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