Reference no: EM132944618

Question 1:

Cargo Wings, a limited liability company, was incorporated in Ruritania on 1 June Year 1. In July, the company exercised an exclusive right that it had been granted by the government of Pakistan to provide daily flights direct between Islamabad and Istanbul.

The service has been widely advertised in the national newspapers of both countries as 'prompt, efficient and reliable'. As a result of these flights, it is expected that the travelling time between Islamabad and Istanbul will be reduced by about eight to ten hours. This shortened travelling time should increase the volume of commerce and trade between the two countries.

Cargo Wings operates a refurbished 30-year-old aircraft. This is leased from an international airline and registered wit h the Civil Aviation Authority (CAA). The CAA has a strict requirement that the engines of all aircraft on its register should be overhauled every two years. The overhaul of an aircraft engine usually puts the aircraft out of operational activity for up to five weeks.

The aircraft can carry 20 First Class, 50 Business Class and 80 Economy Class passengers. It also has a large hold for transporting cargo, in addition to passenger luggage.

On-board meals for the three-hour journey are prepared in Islamabad under a contract with an airport catering company. Market research by Cargo Wings has shown that passengers are in general dissatisfied with the quality of in-flight food, especially on the Istanbul to Islamabad flight.

Required

Identify and explain the business risks and associated financial statement risks facing Cargo Wings.