Throughout the year of 2001, CSA successfully used its added fixed assets to generate more operating profits. By means of leasing more fleets and equipments, the production capacity enlarged. Surprisingly, the total assets of CSA has decreased by RMB 270 million in 2001, which is chiefly due to the significant outflow of cash in this particular year.

On the other hand, the aggregate liabilities of CSA have a negligible flux. Hitherto, the preceding long-term liabilities has come to the due date, as a result, it converts to the current liabilities.Eventually, this leads to a great increase of net current liabilities and put CSA’s financial position at risk.

From the previous sections, the current assets ratio of CSA was less than the desired value, which was less than one as well as going down greatly. Also, the current liabilities of CSA were inclining too. Apart from the current assets ratio, the acid test ratio showed a more depressing result with the value of 0. 48 that meant CSA was running into a more serious liquidity problem. Furthermore, the amount of cash and cash equivalents significantly dropped down which supplementary weaken CSA’s financial position.However, the accounts payable of CSA decreased from RMB 758 million to RMB 590 million in 2001, and thus, the creditors may have more confidence towards CSA as it was able to pay back its operating credit sales. Besides, the inventory level of CSA just fluctuate a bit from RMB 464 million to RMB 467 million. In relation to the appalling external environment, this minor fluctuation of stocks may act as another protecting tool for CSA since the creditors will have more assurances towards the operating activities of the airlines.

Another important factor towards CSA financial position is the debts of the airline, from Appendix 1, the net debts to assets ratio indicated that the net debts of CSA were raising. Yet, two of the non-current liabilities, which contributed to the interest payments, were decreasing and they are: Bank and other loans plus obligations under finance leases. These two changes will certainly assist CSA from paying the interest expenses. There is no doubt that less interests will be paid in the next financial period under this circumstance that will improve the financial position of the firm.Comments In my own point of view, there are other forces that will affect CSA’s performance in the coming years. Definitely, the previous performance will influence its coming functioning. Nonetheless, the external and internal environment will also have influences toward CSA’s operations. At the outset, it is unarguable that the economic environment will have direct impacts.

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The loans of CSA have been denominating by the foreign currencies; as a result, the foreign exchange rate of the other currencies against RMB will be one of the important factors affecting CSA’s profitability.In case RMB appreciates in the coming fiscal year, CSA will enjoy a gain in paying less interest. Despite that, the global political issues will exert certain weights into CSA’s progression too.

Jet fuel, which is a non-avoidable cost for flight operation, and its price has grew up drastically since the United States and United Kingdom are fighting again Iraq. The war will force the price to go upwards, and hence, the operating costs of CSA will increase accordingly. Furthermore, the insurance premium of the flight will reach another peak after the outrageous 911 terrorism since the insurance companies have to compensate for the travelers.

Undoubtedly, the rise of insurance will appear as an added cost for CSA. In addition, the grisly and frightful atypical pneumonia. This disease was originated in China – Guangzhou, that is the headquarter of CSA. In fact, government of different countries are persuading their citizens to keep away from traveling to the infected areas, especially China, Hong Kong, Vietnam and so on. In addition to the word of mouth from the medias and government, it has been proved that the awful pneumonia can be spread out easily on board.Subsequently, the foreigners may forestall themselves from traveling by the plane. Instead, alternative mode of transports may be used while traveling as well as avoiding travel by the Chinese carriers or take a trip to China.

Obviously, the demand of CSA services will decline and hence, it is important for the management staffs to further evaluate its position and how to maintain a reasonable amount of profit. Other than the above aspects, internal circumstances are tactic effects for CSA’s further expansion too.I am going to put my focus on the suitable choice of operating strategy. In reality, CSA is trapping in between the product differentiation and cost leadership. If CSA is planning to increase its financial leverage (Net debts to assets has been increasing) in order to attain an increase in the return on capital employed, the management board must ensure that the return on assets is positive.

Without a doubt, the profit margin of CSA cannot be easily boost up in this new era because of the over supply and intense contest among the aviation industry.Thus, it is essential for CSA to increase its effectiveness in order to maintain a satisfactory level of return on capital employed. By promoting low fare services in bulk and increase its sales volume to create more profits.

However, I will suggest CSA to keep its emphasis on product differentiation. By building a better brand name, loyalty of customer and employee, special service and quality management, CSA may success. The impressions of China in the foreigner’s perceptions are always underdeveloped, unclean, disrespect and etc.Therefore, CSA can try to promote its services by emphasizing hygiene and qualitative services. Under the above advertising idea, the foreign travelers will at least realize that one of the Chinese carriers called CSA are cleaner than the others and the chance of infected by pneumonia will be lower while traveling on board.

In due course, they will choose to travel by CSA instead of the other carriers. By earning a higher profit margin, the return on capital employed will also increase. Hence, CSA financial position can then be enhanced.Last of all, CSA can choose to integrate vertically with the aircraft and equipments manufacturers.

Via backward integration, CSA can escape from the massive amount of lease payments, interests, as well as the deposits. Lease is similar to the long-term debts; it is indispensable for CSA to pay for the principals and interests. After the integration, cost can be efficiently controlled. However, CSA must keep in mind that authorizing preference shares during the liquidity period will not help, in contrast, the current situation may be worsen. Overwhelmingly, CSA will have to make dividend payments to the preference shares.

Also, the ordinary shareholders will be a bit riskier because of the dividend and liquidation preferences of the preferred stocks. Finally, it is a key to success for CSA to have a good communication with the public sector. On condition that more co-ordinations in between the China Government, Aviation Organizations, other airlines and CSA, professional ideas can be acquired that can basically assist CSA to understand more about the current propensity, marketing strategies as well as attaining assistance from the government. Conclusion In conclusion, CSA is growing with an eye-catching potential.In relation to the greatest volume of passenger traffic, number of scheduled flights per week, number of hours flown, number of routes and sizes of aircraft fleet, there is no hesitation to say that CSA is being one of the most important airlines in China. However, success is always accompanied with obstacles. There are a lot of hedges in front of CSA for the further expansion, including the intense competition among the industry, increasing operating expenses (e.

g. jet fuel), other external environmental factors and so forth. It is definitely a hard task for CSA to fend off all these hedges.

Nevertheless, by implementing the suitable operating strategy, CSA can eventually enjoy a better return on capital employed, as a minimum at an improving trend. Furthermore, necessary planning is essential at any stage of operations and especially at the top management level. Evaluating the strength and weakness of CSA is at first the most significant step. Afterwards, the management board should make good use of the assets of the company, for instance, cash, and create as much profit as possible for the shareholders through the payment of dividends or reinvesting the operating profits to strengthen its productivity.Other than the above mentioned, the management team, and leaders in CSA should be adaptable enough to accommodate any sudden issues that will affect CSA’s performance like atypical pneumonia.

As a final point, the entire CSA should pay more concern onto the customers since the aviation industry is for eternity customer oriented. Building up good relationships with different stakeholders, such as suppliers, customers and employees will favor the further operational enlargement and aid CSA to another peak within the airline industry.