Government to Provide Emergency Liquidity to Major Airlines...Industry-Specific Monitoring and Support System Activated

The 5th Crisis Management Measures Meeting Held

[Image source=Yonhap News]

[Sejong=Asia Economy Reporters Kim Hyunjung and Joo Sangdon] The government will provide emergency liquidity support to large full-service carriers (FSCs) facing a crisis due to the novel coronavirus disease (COVID-19) pandemic, contingent on their self-help efforts. For the automobile industry, the government plans to reduce burdens related to tariffs and inventory stockpiling, and will launch a parts company business restructuring support team next month to support research and development (R&D) of future vehicles.

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, announced these sector-specific support measures on the morning of the 23rd at the 15th Economic Ministers' Meeting on COVID-19 Response and the 5th Crisis Management Meeting held at the Government Complex Seoul. Under the Economic Central Disaster and Safety Countermeasures Headquarters, which will hold its first meeting next week, Hong will form an 'Industry and Corporate Crisis Response Team' to continuously review the status and support plans for key industries such as automobiles, shipbuilding, refining, aviation, and shipping in cooperation with related ministries.

First, the government will provide emergency liquidity support to large FSCs, which had previously been excluded from support, through the Industrial Stabilization Fund exceeding 40 trillion won announced the day before, contingent on their self-help efforts. Before the fund is established, the Korea Development Bank and the Export-Import Bank of Korea will provide preliminary support. Low-cost carriers (LCCs) will expedite the disbursement of the existing liquidity support of about 300 billion won, and additional support will be considered if necessary.

For the aviation sector, the government will extend the reduction and deferment of airport facility usage fees from the original period of March to May to August. This extension will be maintained until the number of airport passengers recovers to 60% compared to the same month last year. The reduction effect is expected to reach 54.9 billion won by August. Additionally, the aircraft property tax rate will be temporarily reduced from 0.3% to 0.25%, and the government will add ground handling services, duty-free shops, and airport bus services to the list of special employment support industries. These sectors can receive employment retention subsidies covering up to 90% of wages.

For the automobile industry, the government will reduce burdens related to tariffs and inventory stockpiling. It is currently reviewing expanding the special tariff exemption on air freight, which applied to three parts including wiring harnesses, to include vehicle electric motors and filters. Regarding tariffs and value-added tax (VAT) related to parts imports (for the first half of the year), payment deadlines will be extended up to 12 months, and collection will be deferred for up to 9 months.

The government will expedite the purchase of approximately 8,700 vehicles expected for the public sector this year, pay up to 70% of the contract amount in advance, and operate the 'Parts Company Business Restructuring Support Team' starting next month to support R&D related to future vehicles.

In the shipping sector, liquidity support will be expanded centered on the Korea Ocean Business Corporation (KOBC). KOBC will contribute 37 billion won to the COVID-19 response Primary Collateralized Bond Obligation (P-CBO) and participate as a subordinated investor to increase the shipping company bond portion within the P-CBO to a maximum of 260 billion won. KOBC will also purchase up to 100 billion won of corporate bonds from small and medium-sized shipping companies facing short-term liquidity difficulties and provide direct investment or up to 100 billion won support to domestic shipping companies involved in mergers and acquisitions.

Furthermore, KOBC will defer principal and interest payments on ships under sale and leaseback (S&LB) for one year, and expand the S&LB program scale of KOBC and the Asset Management Corporation from 100 billion won to 200 billion won. KOBC will make subordinated investments in existing ships of shipping companies, and additional financial support will be considered if liquidity worsens for shipping companies supported by the Korea Development Bank and the Export-Import Bank of Korea.

For refining and shipbuilding, the government will provide tax payment deferrals and production financing support. Refining companies will have extended deadlines for fuel taxes (transportation, energy, environmental taxes, and individual consumption tax) and tariffs and VAT on imported items (such as crude oil). Shipbuilding will continue to receive production financing support (approximately 8 trillion won in 2020), maintain and promptly issue refund guarantee (RG) for advance payments, actively supporting orders. The government will also consider extending the designation of shipbuilding as a special employment industry.

Meanwhile, at the 5th Emergency Economic Meeting chaired by President Moon Jae-in the day before, the government announced plans to establish an Industrial Stabilization Fund exceeding 40 trillion won to provide comprehensive support to key industries. The Korea Development Bank will issue government-guaranteed fund bonds to establish the fund and add private capital. Additionally, the government will resolve funding difficulties through the issuance of COVID-19 response P-CBOs and establish a special purpose company (SPC) to purchase low-credit-rated corporate bonds and commercial papers (CPs).

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