Jin Air to Resume New Routes... Government Announces Sanctions Lift

[Asia Economy Reporter Lee Chun-hee] Jin Air, which had been banned from launching new routes for 19 months, has been released from government sanctions. This recognizes Jin Air's efforts to improve its governance structure, including increasing the proportion of outside directors to more than half.

On the 27th, the Ministry of Land, Infrastructure and Transport (MOLIT) announced that it held a licensing advisory committee meeting composed of seven external expert civilian members in law, management, accounting, and air traffic, and decided to lift the government sanctions on Jin Air. Since August 2018, Jin Air had been subject to sanctions prohibiting business expansion, including denial of new route rights, restrictions on registering new aircraft, and prohibition of operating non-scheduled flights by MOLIT.

These sanctions were imposed after it was revealed that Cho Hyun-min, then Vice President of Jin Air and Executive Director of Hanjin KAL, was a foreign national. In April 2018, allegations surfaced that Executive Director Cho had engaged in 'gapjil' (abuse of power), such as spraying water on an advertising agency employee. As the controversy expanded, it was further revealed that Cho, a U.S. citizen, had served as a registered executive of Jin Air for six years from 2010 to 2016. Under current law, if a foreigner is registered as an executive, an air transport business license cannot be granted, making his tenure illegal. Violations could lead to license cancellation.

However, MOLIT at the time stated, "The negative ripple effects socioeconomically caused by license cancellation, such as employment instability for workers, inconvenience to passengers, and damage to minority shareholders and related industries, are judged to be greater than the social benefits achievable by license cancellation," and instead of canceling the license, announced sanctions prohibiting new route launches until Jin Air fully implements its self-submitted remedial plan.

At that time, MOLIT presented criteria for business normalization, including excluding approval by Hanjin Group affiliate executives, strengthening the authority of outside directors, introducing an internal reporting system, and improving the in-house grievance handling system.

Since then, Jin Air submitted a final report to MOLIT in September last year covering 17 items, including measures to prevent recurrence of violations of aviation laws and improvements in management culture, and officially requested the lifting of sanctions. MOLIT then formed a licensing advisory committee to review the possibility of lifting the sanctions.

However, in December last year, the licensing advisory committee pointed out, "Although there has been some progress in improving management culture, objective and independent operation of the board of directors, such as expanding outside directors, is insufficient." In response, Jin Air, through consultations with MOLIT, prepared governance improvement measures to strengthen the independence of the board and its role in checking management. This improvement plan was finalized at the shareholders' meeting on the 25th.

In front of the Sejong Center for the Performing Arts in Jongno-gu, Seoul, where hearings are ongoing in August 2018 to decide whether to revoke Jin Air's license by the Ministry of Land, Infrastructure and Transport, representatives of the Jin Air Employees Union are holding a rally urging opposition to the revocation of Jin Air's license. Photo by Kang Jin-hyung aymsdream@

The improvement plan confirmed through the shareholders' meeting stipulates in the articles of incorporation that the proportion of outside directors on the board must be increased from at least one-quarter to at least one-half to strengthen board independence. Jin Air's board will be composed of three inside directors and four outside directors, with one additional inside director and one additional outside director added respectively. In this process, the position of other non-executive director held by a Hanjin KAL executive was abolished, significantly reducing Hanjin KAL's influence.

Furthermore, the roles of board chairman and CEO were separated, with one of the outside directors appointed as chairman. The method of appointing the chairman, to be decided by the board, was also clarified. The existing internal transaction committee was expanded into a governance committee, and new committees such as a safety committee and a compensation committee were established, with these board committee reorganizations and new establishments approved together.

Alongside this, a corporate governance charter specifying directors' liability for damages was enacted, a compliance officer was appointed, legal department personnel were expanded, and the compliance officer was granted independent audit functions excluding group audits, thereby strengthening compliance management measures.

MOLIT accepted the licensing advisory committee's opinion that "since Jin Air has prepared the promised management culture improvement plan, there is a need to lift the sanctions," and decided to lift the sanctions.

Kim Sang-do, Director of the Aviation Policy Office at MOLIT, said, "Since Jin Air has prepared the promised management culture improvement measures, we expect and will monitor that Jin Air operates accordingly and becomes a trusted airline company."

This content was produced with the assistance of AI translation services.