Korean Air in Crisis, Considering Rights Offering "Under Review"

On the 9th, the Korean Air ticketing counter at Terminal 2 of Incheon International Airport is quiet. Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Yoo Je-hoon] Korean Air, which has been pushed into a liquidity crisis due to the novel coronavirus disease (COVID-19) outbreak, is drawing attention as it considers raising funds through a rights offering.

According to the financial investment and aviation industries on the 20th, Korean Air is reportedly in discussions with major securities firms to pursue a general public rights offering worth between 500 billion and 1 trillion KRW.

The reason Korean Air is considering such a large-scale rights offering is that the company's financial situation is gradually deteriorating due to COVID-19. Since international flights, which account for more than 90% of passenger revenue, have been largely suspended, cash inflow has significantly decreased. The securities industry expects Korean Air to post a deficit in the 200 billion KRW range in the first quarter alone.

Raising funds is also not easy. Korean Air succeeded in issuing 622.8 billion KRW worth of aircraft fare receivables-backed asset-backed securities (ABS) at the end of March, but considering the corporate bond repayment of 240 billion KRW scheduled for the end of this month and fixed costs amounting to 400 to 500 billion KRW monthly, the cash on hand is limited. Additional ABS or corporate bond issuance is also difficult. Under these circumstances, the total borrowings that Korean Air must repay or refinance by the end of the year exceed 4 trillion KRW.

As the situation worsened, Korean Air decided to sell idle assets such as the Songhyeon-dong site in Jongno-gu and Wangsang Leisure Development, and implemented rotational leave for all employees as a self-help measure. However, many analysts believe that these efforts alone will not be enough to put out the urgent fire. Chairman Cho Won-tae also mentioned additional capital expansion to secure financial soundness along with asset sales in a statement released after winning the regular shareholders' meeting last month.

Korean Air stated that nothing has been finalized regarding the rights offering rumors. A Korean Air official said, "The rights offering is being considered as part of reviewing all possible measures to secure liquidity," adding, "Nothing has been specifically decided yet."

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