American Airlines Political Risk

Although we don't delve deeply into political risk as it is beyond the scope of the textbook, it is a risk borne by multinationals as American Airlines found out. American recently announced that it would take a $592 million special charge in the fourth quarter as a result of Venezuelan currency controls. Venezuela's socialist government forces airlines to sell airfares in bolivars, but makes conversion of the bolivars into U.S. dollars difficult. As a result, American has bolivars trapped in Venezuela.