Saneun and Su-eun Provide Over 1 Trillion KRW Emergency Funding to Korean Air

Support Measures for Airlines by Creditors... Follow-up Actions After Government Support for Key Industries
Like Asiana, 'Limit Loan' Method... Guarantee and Perpetual Bond Purchase Also Expected
Final Agreement Possible Among Participating Institutions for Rapid Corporate Bond Underwriting Application

[Asia Economy Reporter Jo Gang-wook] KDB Industrial Bank and the Export-Import Bank of Korea will urgently inject over 1 trillion won in funds into Korean Air, which is facing financial difficulties due to the COVID-19 pandemic. The support amount is known to be in the low 1 trillion won range, less than the recent 1.7 trillion won support provided to Asiana Airlines.

According to financial circles on the 24th, the creditor group including the Industrial Bank is expected to announce support measures for airlines such as Korean Air. This is a follow-up action to the government’s plan to establish a 40 trillion won Industrial Stabilization Fund announced the previous day. Since it takes time to revise laws and establish the fund, the government has stated that for the severely struggling airline industry, emergency funds will be injected through policy banks such as the Industrial Bank and the Export-Import Bank.

The support method for Korean Air is understood to be a 'credit line loan,' similar to the support for Asiana Airlines, which allows the company to withdraw funds as needed from a corporate overdraft account. However, the support amount is reported to be over 1 trillion won but less than that of Asiana Airlines, in the low 1 trillion won range. Additionally, guarantees and perpetual bond purchases are likely to be included. If the creditor group purchases perpetual bonds, it will have the effect of lowering the debt ratio.

A creditor group official said, "We will provide emergency funds to Korean Air through a credit line loan method," adding, "The support amount exceeds 1 trillion won but is less than that for Asiana Airlines."

As the COVID-19 crisis prolongs and airlines face severe financial difficulties, Korean Air has suspended operations on 93 out of its 125 routes, and 29 routes have been reduced. The international routes, which account for 94% of passenger revenue, are operating at only 14.8%. The minimum fixed monthly costs approach about 400 billion won, and with eight months remaining this year, fixed costs alone exceed 3 trillion won. Korean Air’s operating loss in the first quarter is expected to reach 240 billion won.

With international flights blocked, Korean Air is unable to issue additional Asset-Backed Securities (ABS), and its credit rating (BBB+) has been downgraded, making it practically difficult to raise funds independently aside from creditor group support. Korea Credit Rating maintained Korean Air’s credit rating at BBB+ last month but changed the outlook from 'stable' to 'under review for downgrade.' Additionally, Korean Air’s ABS credit rating was downgraded one notch from 'A' to 'A-.'

The amount Korean Air must repay this year, including corporate bonds, ABS, and borrowings, reaches a staggering 4 trillion won. Of this, 1.2 trillion won matures within the first half of the year. Korean Air has implemented various self-help measures, such as placing over 70% of its employees on six-month rotational leave and executives voluntarily returning 30-50% of their monthly salaries, but the situation remains difficult. The company is also pushing to sell idle assets and non-profitable businesses such as the Songhyeon-dong site and Wangsang Marina, recently selecting a consortium of Samjong KPMG and Samsung Securities as the sales agent, but these efforts are insufficient to immediately resolve the urgent financial crisis.

Meanwhile, regarding Korean Air’s application for the corporate bond rapid underwriting system, participating institutions are expected to finalize the agreement today. To refinance, Korean Air has been preparing to apply for 500 billion won under the corporate bond rapid underwriting system operated by the Industrial Bank. After the final agreement, the corporate bond rapid underwriting system, which will be fully operational next month, will have the Industrial Bank purchase 80% of the total corporate bonds, with the issuing company repaying the remaining 20% on its own.

A creditor group official said, "The final agreement for the corporate bond rapid underwriting system is in its final stages," adding, "After the agreement, the inclusion will be decided through demand assessment by companies and review by the screening committee."

Meanwhile, additional support measures for low-cost carriers (LCCs) are still being finalized, and it is uncertain whether they will be included in today’s support plan. The Fair Trade Commission approved Jeju Air’s acquisition of Eastar Jet the previous day. Earlier, the Industrial Bank announced plans to support Jeju Air with 150 to 200 billion won together with other banks this month after the Fair Trade Commission’s corporate merger review is completed. The Industrial Bank is operating an LCC financial support program within 300 billion won and has supported 126 billion won so far.

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