The Cost Of Risk Management Aviation

The safety aspect for risk management will evaluate the potential for human loss of life and or injury. The potential for major incident or accident, such as fire, explosion, or spill, including environmental damage. The necessity for security within the company is a highly need aspect of safety that can lead to risk. The revenues aspect for risk management will evaluate the loss of customer base, recovering of capital loss and recognizing uncoverable capital loss, and loss of opportunity in marketing of the product. The necessity for revenue risk management is key. The costs aspect for risk management will evaluate the costs that were incurred due to preventable problems. Also, costs due to increased warehouse space, vendor changes, and discount changes. A significant risk in cost for this company is the cost of legal defense. The legal aspect for risk management will evaluate regulatory compliance failures and actions that could result

The airline industry is one of the largest global industries in the world. Airline companies in the airline industry have gone through challenging obstacles in the past decade. Many changes have occurred within the industry and increased regulations have driven up cost for the industry. The attacks on 9/11 left the industry in shock when planes were used in terrorist attacks in the United States. These attacks changed the mentality of the industry and shifted the focus towards safety. Safety was also a major concern in the industry with the breakout of SARS in 2003 and the H1N1 flu in 2009. The airlines had to ensure that public health and safety of the travelers were

Based on these factors, we can conclude that with the strict safety and operational rules and regulations imposed by the regulators in current political environment, stiff competition from the budget “ No Frills” carriers, the evolution of the passenger profile and airline accidents ( missing planes / air plane crashes and environmental progresses have affected the viability and profitability of the global airline industry.

At the end all the risk are finance related, because the liability’s cost money and this will have an effect in the company’s earnings, so what is important is not only to try to avoid such events but also to be prepare in case they happen and have a plan, is like the saying “Hope for the best but be prepare for the worst”.

Background- In its most basic sense, risk management identifies, allows assessment, and prioritizes risks that are associated and central to an individual project or organization. Risk management allows the organization to be proactive in preventing or mitigating risks, for improving certain processes within the organization, and with the hope of preventing fiscal exposure. However, in almost every organization there are risks individuals are unique and do not always perform at a high level of safety; mechanical or design failures exist, construction projects have supply or labor issues, there are uncertainties in computer or data modification, of course natural disasters, and even deliberate attacks from competitors, etc. Because this is such a common occurrence, national and even international standards have been developed in conjunction with the insurance and regulatory institutions to at least provide basic guidelines to minimize risks risk (International Organization for Standardization, 2009).

P. Airlines are subject to extensive regulatory and legal requirements issued by The Department of Transportation and The Federal Aviation Administration. The industry has to comply with laws and regulations not only domestically but also internationally which requires significant spending. After 9/11, many new security measures have been put into practice, resulting in expenditures for equipment, training the personnel, federal and airport charges, security taxes and etc.

Collier (2009) claims that the fundamental role of the Board of the directors in a company is to apply risk management and to review the performance of the organisations’ internal control procedures; these two principal processes will support the Board in the setting of the strategic targets, the transformation of the targets into real products and services, the effective business overseeing, and the realistic reporting to the external stakeholders. Apart from the Board, the author suggests that an effective risk management framework must be facilitated by a risk management group, a chief risk officer, external and internal audits, and a mature organisational culture disseminated to the line managers and employees. Under the same concept, Hampton (2009) presented a flow gram that suggests the path towards the establishment of enterprise risk management, starting from the risk recognition and ending to the standardization of a risk evaluation process, having prior involved the Board, the risk owners and the accountable staff.

The tragic and apparently intentional crash of Germanwings Flight 9525 in the French Alps serves to highlight the many and varied risks organizations have to manage in the face of compliance regulations, both domestic and international, for the protection of customers and their assets.

Risk assessment is the most basic function of internal control that helps companies to prevent risks. Risks are analyzed, considering possibility and influence, as a basis for determining how they should be dealt with, thus, those potential risks can be identified before financial losses occur (Feng et al., 2009). For example, a company purchases an advanced fire-prevention system including the smoke detectors and fire alarms. This control behavior can reduce the possibility of fire accidents that may destroy the company’s physical assets. Therefore, the system is worthwhile because it prevents the company suffering from the likelihood of fire and avoids financial losses. Internal control systems have been advocated as a mechanism for establishing high quality management (Altamuro et al., 2010). It is impossible to run companies without any risks. What managers need to do is to assess the possibility of the risk and take relevant measures to prevent it occurring. The model of risk assessment is applied to decide whether the control should be implemented. There is a tiny flaw of the internal control. From the example it can be seen that if the cost of purchasing the fire-prevention system surpasses the total value of the company assets, this kind of control will lose its significance. Internal control makes great contribution to reducing

* Catastrophic Risk: Despite flying being the safest form of traveling, catastrophic risk is attached with the aviation industry because if any unforeseen circumstances take place then major monitory damages happen. It lies in the LOW FREQUENY-HIGH SEVERITY zone. This type of risk is usually transferred to the third party through insurance. The entire commercial aircraft is insured in about $100 million to $250 million.

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Travelling by air is one of the most common forms of transportation to get to overseas destinations and Singapore Changi Airport is the sixth busiest international airport today. As a major air hub in Asia, Changi Airport handled more than 51.2 million passengers in 2012 and this makes it a legitimate target in the eyes of terrorists and other forms of crime because of the number of people located in a particular location.

The airline must benefit from hedging due to the mitigation of finance risk, reduction agency problems of information asymmetry in this section we show the important relation between Aircraft Company and hedging of fuel price and operating cost due add value. The hedging is associated with a lower cost of crude oil, operating cost comprehensive set of controls and finance specifications. Hedging initiating firms of airline experience a drop in the cost while suspension firms sustain a jump. We perform an extensive set of robustness tests to address the possible issue of endogeneity, competitive. We further show that hedging leads to a drop in the cost of debt by reducing higher oil price risk and the level of

In this financial crisis is thrown important question is that hedge titled large or small to airlines. Aviation Cost Risk management provide a unique model allowing for a main test the value of shareholders in fluctuation price oil and reflection that on airlines stock holders risk management using the hedging that an expect the implications of rising or low jet fuel prices related to cash flows, and finance is positively correlated to the level of costs jet fuel in this kind of industry the reason for that costs expensive operating jet fuel have a huge part of expensive operate airplanes company . The hedge provides a chance to buy assets through finance at the low price of oil. This

Associations in today 's worldwide economy must react to various instabilities, including property-obligation exposures, advantage worker programs, and different other financial risks. To facilitate reactions to the full range of dangers influencing an organization 's primary concern, chiefs must enhance, support, and guarantee risks in perpetually long and proficient ways. The specialized skill and vital vision relevant to oversee danger is the topic of the project in Risk Management and Insurance. Also, the rising economies in the Asia-Pacific district are becoming quickly. They have demonstrated a remarkable business potential for the Singapore RMI industry as a center point in this region. Getting up to speed with monetary improvements, the Asia-Pacific Insurance corporate sector is developing quickly. Be that as it may, to improve hazard administration and location this developing interest for protection, RMI organizations need to comprehend the basic social and social components connected with corporate and individual conduct(ntu, 2015).