Moody's, S&P still doubt future of Korean Air, Asiana

Korean Air and Asiana Airlines planes are parked at Incheon International Airport, Dec. 8. / Yonhap

By Park Jae-hyuk

Credit rating agencies here and overseas are still maintaining a cautious stance regarding their ratings for Korean Air and its affiliates, saying there remain uncertainties over the air carrier's owner Hanjin Group's plan to acquire Asiana Airlines.

Moody's Investors Service said Thursday its review for upgrading Hanjin International's ratings will focus on the completion of Korean Air's proposed equity issuance scheduled for March next year, the progress in its proposed acquisition of Asiana and the company's plans to address the near-term debt maturities.

The U.S. rating agency began to consider upgrading the credit rating of the wholly owned Korean Air subsidiary which manages the Wilshire Grand Center building in Los Angeles, after the announcement of the historic aviation deal last month.

“The review for upgrade reflects our expectation that the proposed acquisition, if completed, will significantly improve Korean Air's scale and competitive position,” Moody's analyst Sean Hwang said. “Additionally, Korean Air's planned equity raising and increased importance to the Korean economy will substantially mitigate the risk associated with Asiana's poor liquidity and financial leverage.”

S&P Global Ratings also said earlier this month it would maintain its negative outlook for Hanjin International, despite the proposed acquisition deal.

“The airline industry is still suffering from significantly reduced passenger travel volumes due to COVID-19, with low visibility on the degree and timing of recovery,” S&P analyst Kim Min-jib said. “Moreover, we believe meaningful synergies between the two airlines will take time, considering their largely overlapping business profiles and the weaker performance of Asiana even before the outbreak. Asiana's weaker cash flow generation and higher leverage could also weigh on the consolidated entity.”

The nation's three largest agencies are also keeping a close eye on the progress of the deal.

The Korea Investors Service gave negative outlooks this month for Asiana Airlines, Korean Air and Hanjin KAL, Hanjin Group's holding company, citing the unfavorable business environment and procedures required for the acquisition deal that will take time.

Korea Ratings changed its outlooks on Korean Air and Hanjin KAL to “negative” from “negative review” last month, saying it will continue to monitor the impact of the Asiana acquisition.

“The closure of the deal could be delayed because there are too many variables, such as a backlash from shareholders, and litigation,” Korea Ratings analyst Ji Kwang-hun said. “Korean Air will not be able to enjoy the positive effect of the acquisition unless business conditions are normalized.”

NICE Investors Service said the planned acquisition of Asiana will have a limited impact on Korean Air's credit rating at this moment.