Saddling High Levels of Debt
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Saddling High Levels of Debt
During the 1970s, the managers of Ling-Temco-Vought, Inc. (LTV)Жmanufacturers of aircraft and aircraft related electronics, borrowed heavily to exploit the advantage of financing operations with debt. At first the airlines were making profits; their operating income a lot higher than interest expenses. Unfortunately as the business cycle turned, the company was unable to continue making profits, reporting losses. Their expenses were a lot higher than their interest income. This burdened the company with a lot of debt, and hence pushed the company to the brink of bankruptcy.
Airline manufacturing is one of the riskiest industries. The major cost of airline industries is money spent on research and development. Products of the aerospace industries are very expensive, a lot of money is spent on researching products that might not even leave the drawing board, even if the product finally leave the drawing boards, there is no guarantee that they will be bought. Furthermore their products are only bought when the economy is doing extremely well. This makes the aerospace manufacturing an extremely risky industry.
The luxuries we enjoy today, for instance: cheaper and better air travel, would not be here, were it not for high risk taking by the airline-manufacturing administrators. In spite of the afore mentioned points, I still do not think that it is ethical for managers of Ling-Temco-Vought, Inc to saddle the company with a lot of debt. Financing business operations with debt, is a common business practice, but having high levels of debt is not good business practice at all. As a consequence of high levels of debt taken by the managers of Ling-Temco-Vought, Inc, people at the lower end of the ladder and investors are going to suffer a lot. When the Ling-Temco-Vought, Inc is pushed to the brink of bankruptcy the managers are going try to cut input cost, that means that people with skills that are easily acquired, will lose their jobs. Also people who invested in the company will lose a lot of money. It is unethical for the managers to take so much risk when they know that the chance of them losing their jobs or being affected in any form is very low.
In conclusion, even though taking a lot of debt means more money is spent on research and development, and hence better products for the consumers in the