Gov't restructuring 'uncompetitive' airliners

By Lee Min-hyung

The government will lead the restructuring of the debt-ridden aviation industry, leaving “uncompetitive” low-cost carriers unqualified to receive coronavirus relief funds.

Earlier this month, the Korea Development Bank (KDB) decided to raise a 40 trillion won ($33 billion) virus relief fund in response to growing calls for the government to play a bigger role in salvaging companies and key industries hit hardest by the pandemic.

The state-run lender and the financial authorities picked the aviation industry as the first beneficiary to receive special funding, as the potential fallout from bankruptcies could bring a wider-than-expected shock to the economy.

The nation's nine low-cost carriers welcomed the decision amid hopes to receive financial aid at a time when most of them are suffering serious earnings setbacks after international flights were suspended due to the COVID-19 pandemic.

But the state-run lender and the government have not expressed “blind faith” in the sagging airliners, instead introducing a series of tight standards so that only a few will enjoy the financial relief.

According to the requirements from the authority, only Jeju Air and Air Busan are eligible to receive funds out of the nine domestic low-cost carriers, while seven others have to come up with cost-cutting self-rescue measures to tackle the ongoing crisis. Korean Air and Asiana Airlines, the nation's two major airliners, are also expected to receive funding.

Under the guideline, airliners with a debt of more than 500 billion won can receive support. This has blocked mid-tier low-cost carriers ― such as Jin Air and Eastar Jet ― from getting any money from the government.

“Low-cost carriers must have been deeply disappointed by the decision,” an industry source said. “But the government is not in a position to provide unconditional financial support to sagging companies, as such a move can be seen as a reckless waste of taxpayers' money.”

“The government's budget is not sufficient enough to fund industry players widely deemed as uncompetitive,” the official said.

Korea has nine licensed low-cost carriers, which is more than that of most developed countries ― such as Japan and Germany. The U.S. runs the same number of low-cost carriers, even though its population and territory are both far larger than Korea.

Against this backdrop, calls have grown recently for the government to support only “competitive and promising” carriers, with some critics arguing that the COVID-19 shock is a good chance to downscale over-supply in the airline industry here.

All nine carriers generated tens of billions of dollars in operating losses in the first quarter of 2020 when the virus began spreading across the globe. The airlines have in recent months been left operating emergency management for their survival, taking such measures as putting staff on unpaid or paid leave.

But the end is not in sight, due to the longer-than-expected virus shock.

“The government's decision, disallowing those with less than 500 billion won in debt to receive the fund, is a message that less competitive carriers should find their own way for survival, rather than seeking government support,” another source from one of the state-run lenders here said.