American International Group, the huge insurer agreed to sell its Taiwan unit Nan Shan to an investor group led by Primus Financial (a Hong Kong based Financial services company) for $2.15 billion US. American International Group had to sell Nan Shan because they were bailed out by the U.S. government. The bailout package is worth up to $182.5 billion U.S. and in exchange, the U.S. government gets 80% ownership of the insurer. In order to repay the government aid, AIG had to sell its assets; therefore, selling Nan Shan was its only option.
Connection:
This is not a transaction that you would find in a small business, but it does relate to some of the transaction described in Chapter 2. This transaction is similar to the “purchase of land” transaction described in this chapter. During this transaction, Primus ( the company that bought Nan Shan ) would have to decrease their cash account because they had bought something. They would also have to increase their Land account (or purchase account) because of the purchase of Nan Shan. On the other hand AIG sold Nan Shan because they want to repay the government back; therefore, a possible transaction may be the decrease of AIG’s cash account and accounts payable account.
Reflection:
This was a huge and hard decision made by the American International Group. They had to sacrifice their assets (Nan Shan) in order to pay the U.S. government back. In my opinion, I think this was the right decision because in order to lower the debts owe, AIG needs to sell off some of their assets to cover their debts. Even though the cash received was small amount compare to the amount they owe, it is still better paying back a small amount instead of not paying back at all. Hopefully the economy would turn around in the future and AIG would be able to pay off its debt without selling its assets.
The recent article I read compares the financial situations of the airline industry after 9/11 and the current recession. It was found that the airline industry is suffered more during the recession than it did in the aftermath of 9/11. The financial lost of 2008-2009 was $27.8 billion, which is greater than the lost of $24.3 billion in 2001-2002. This airline industry is expected to fall by another 15% this year, which puts this financial crisis a larger impact than 9/11. The agency also blame for the increase in fuel prices.
Connection:
The connection that I had made between this article and chapter 1 is the importance of financial analysis. By analyzing the financial statements, it can determine where the company stands and whether it is making a profit or not. This can also forecast financial decision, so they can make good and sound management. With good analysis, the airline industry can make good decisions without taking big risk. With good analysis, businesses may be able to find trends on why they are losing money instead of making a profit.
Reflection:
During the time of financial crisis, I do not find that the airline industry losing money abnormal. What surprised the most in this article is that the airline industry did much worst than they did during 9/11. The amount of money that they lost is shocking. I knew that the airline was doing poorly, but not to this extent. I think people of this industry should find away to fix this problem before anymore money is lost.
