Gov't to offer W1.2 tril. to Korean Air

A Boeing 747-8F Korean Air Cargo jet taxis past other waiting aircraft to take-off at Seattle-Tacoma International Airport, Thursday (KST) in SeaTac, Wash. AP-Yonhap

By Kim Yoo-chul

The government has decided to give 1.2 trillion won in emergency financial assistance to the severely-ailing Korean Air to help it cope with the fallout from the coronavirus pandemic. This comes as the country's flagship carrier was already experiencing tough times prior to COVID-19, which could deal it a final blow.

In a joint announcement released Friday afternoon, the carrier's main creditors ― the Korea Development Bank (KDB) and the Export-Import Bank of Korea (Eximbank) ― said Korean Air will receive 1.2 trillion won from them in addition to their buying its corporate bonds which many believe could help the country's top airliner avoid financial ruin.

“The KDB and Eximbank jointly plan to offer 1.2 trillion won in cash to Korean Air as the carrier is suffering from a liquidity crunch amid a frozen financial market and the aviation industry being hit hard by the COVID-19 pandemic,” the statement said.

But it clarified that the emergency assistance would only be given after reviewing various restructuring measures by the carrier including plans to sell-off none-core assets, and to limit dividend payouts and share buybacks. The creditors said the assistance would hopefully address the dire needs of the carrier and allow it to protect employees and operations.

The decision came a few days after President Moon Jae-in and the Cheong Wa Dae economic team produced a bailout package of 49 trillion won ($40 billion) to help contain the economic fallout from COVID-19. The government said $1.6 billion of that money will be destined for the purchase of corporate debt in an effort to help airliners lower their debt ratios.

The amount announced Friday was lower than the 1.7 trillion won creditors decided to inject into the country's No. 2 carrier, Asiana Airlines. The statement added that they expect HDC Hyundai to complete the planned acquisition of Asiana “as scheduled” after finishing necessary due procedures.

Korean Air has already demonstrated its intention to boost its financial position as it will be divesting itself of none-core assets, signaling the company could be prioritizing paring down its snowballing debt over rewarding shareholders. The global spread of COVID-19 has disrupted supply chains and travel, gravely hitting Korean Air.

Because the airline industry is considered a “vital backbone” of the country, along with the automotive, steel, shipbuilding and technology industries, Cheong Wa Dae and its economic team had no option but to provide the country's top two carriers with emergency funding.

Out of 125 routes they operated, 93 have been stopped with the remaining 29 offering reduced flights. Korean Air has placed 70 percent of its 19,000 employees based in South Korea on leave for six months after the operation rate on its international routes, a critical cash source, dropped to 14.8 percent.

Korean Air is expected to report a 240 billion won operating loss for the first three months ended March 31. Its credit rating, considered as a barometer in borrowing at favorable interest rates from the money market, was BBB+, while it has to pay back 4 trillion won in loans by the end of this year.

But the statement didn't include specific plans on support for low-cost carriers, although the KDB earlier said it was planning to provide between 150 billion won and 200 billion won to Jeju Airlines. The acquisition of Jeju Airlines by Eastar Jet was recently approved by the country's anti-trust regulator.