Korean Air and Asiana Airlines ABS Credit Ratings Downgraded

Hanshin Rating "Trust Principal Recovery Performance Drops to a Serious Level"
Korean Air A→A-, Asiana Airlines BBB+→BBB

[Asia Economy Reporter Minji Lee] The liquidity of airlines has been put on alert due to the impact of the novel coronavirus infection (COVID-19). As the trust principal recovery performance of major airlines has sharply declined to a serious level, credit rating agencies have collectively downgraded the ratings of airline fare receivables ABS.

On the 4th, disinfection workers from a quarantine company are disinfecting a Korean Air passenger plane bound for New York at the Korean Air aircraft maintenance hangar at Incheon International Airport. Photo by Moon Honam munonam@

On the 13th, Korea Credit Rating announced that it had downgraded the credit ratings of airline fare receivables ABS for Korean Air and Asiana Airlines on the 10th. The credit rating of Korean Air ABS was lowered from ‘A’ to ‘A-’, and Asiana Airlines ABS was lowered from ‘BBB+’ to ‘BBB’.

Airline fare receivables ABS refers to raising funds by securing future airline fares that airlines will earn. Due to the impact of COVID-19, concerns about the downgrade of ABS credit ratings have been continuously raised as long-term sales of airlines are expected to significantly decrease. As of the end of last month, Asiana Airlines’ ABS issuance balance was 468.8 billion KRW, and Korean Air’s was about 1.32 trillion KRW.

Korea Credit Rating cited the significant decline in trust principal recovery performance due to the spread of COVID-19 as the main reason for the rating change.

Since March, most countries have implemented strong entry restrictions, causing the decline in recovery performance for Korean Air and Asiana Airlines to worsen significantly compared to the previous month. In March alone, Asiana Airlines’ ABS recovery performance decline rate was between 42% and 99% compared to the same month last year. Korean Air’s was between 68% and 84%. Researcher Cho said, “Due to the nature of structured finance, where ABS principal and interest repayments depend on the cash flow of the trust principal, the stability of ABS principal and interest repayments is judged to have deteriorated to a certain extent.”

The decline in recovery performance is expected to continue for the time being. Researcher Cho Byung-jun of Korea Credit Rating said, “Large-scale infections are spreading in most major countries, and strict movement restrictions are being implemented worldwide,” adding, “The period of reduced air travel demand due to infectious diseases such as MERS and SARS is expected to be prolonged.”

Accordingly, some express concerns that adjustments to airline fare receivables ABS credit ratings could trigger early payment and additional trust triggers. If the early payment trigger is activated, the SPC must use the cash recovered each business day to repay the matured securitized bonds, which could lead to operational disruptions as expenses such as fuel costs and wages may not be paid.

Researcher Cho Byung-jun emphasized, “Korean Air and Asiana Airlines are expected to respond by additional trusts or changes to trust contracts to prevent the early payment trigger from activating,” and added, “If recovery performance improves and a stable excess collateral level above a certain threshold can be maintained, there will be changes to the ABS credit ratings.”

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