Draft Fund Launches on Weekdays... Amid 'LCC Sorting' Views, Auto Parts and Ssangyong Motor on Alert

Jeju Air and Air Busan Meet 'Over 500 Billion Won Borrowings' Requirement

[Asia Economy Reporters Kim Hyo-jin and Yoo Je-hoon] As the 40 trillion won Industrial Stabilization Fund (ISF) to respond to the damage caused by the novel coronavirus infection (COVID-19) is set to be fully operational this week, related industries are on high alert over the specific support targets and criteria.

Among low-cost carriers (LCCs) facing a crisis of collapse, Jeju Air and Air Busan are expected to be included as ISF support targets. There is also growing interest in whether additional industries such as automobile parts manufacturing will be added to the support sectors.

According to the government on the 25th, financial authorities and KDB Industrial Bank will hold the inaugural ISF headquarters launch ceremony and the first fund management committee meeting on the 28th. The committee will discuss the specific application directions of the guidelines announced by the government last week. The screening process for eligible companies is expected to begin in early next month.

Among the support requirements of "borrowings of 500 billion won or more and 300 or more employees," the "borrowings" criterion will use "total borrowings," which includes both long- and short-term borrowings as well as lease liabilities. A government official said, "Total borrowings include all loans such as lease liabilities on the financial statements," adding, "There was no disagreement on this point during the initial discussion stage."

Considering only long- and short-term borrowings, only Korean Air and Asiana Airlines meet the criteria in the aviation industry. However, when using total borrowings including lease liabilities as the standard, some LCCs such as Jeju Air and Air Busan can also receive support. Jeju Air's total borrowings amount to 641.5 billion won, and Air Busan's total borrowings are 560.4 billion won.

The government has explicitly designated aviation and shipping as industries eligible for ISF support. However, if the case involves critical technology protection, maintaining the industrial ecosystem, the national economy, employment stability, or national security, the Ministry of Strategy and Finance and the Financial Services Commission may consult and provide support.

Therefore, in principle, there remains a possibility that LCCs not meeting the total borrowings criterion could be included as support targets. However, the government has decided to provide liquidity support through policy banks such as the Industrial Bank of Korea rather than the ISF. Exceptional support through the ISF is either not being considered or would be a lower priority.

Within the industry, there is speculation that a sorting process for LCCs has begun. If the suspension of international flights due to COVID-19 prolongs and liquidity crises are not overcome, some LCCs are inevitably expected to go bankrupt within this year.

Professor Lee Hwi-young of Inha Technical College explained, "Even before the COVID-19 crisis fully unfolded, oversupply was widespread," adding, "Even if demand recovers 100% to previous levels under the current system, airlines facing difficulties will continue to emerge."

Competition is expected to intensify. Currently, seven companies?Jeju Air, Jin Air, T'way Air, Air Busan, Eastar Jet, Air Seoul, and Fly Gangwon?are fiercely competing in the narrow domestic market, while two additional carriers, Air Premia and Aero K, are scheduled to launch flights within the year.

An industry insider said, "It seems the government raised the support hurdles considering market oversaturation."

Meanwhile, the government is positively reviewing plans to support automobile parts manufacturers through the ISF. The automobile parts industry is considered to have a significant impact on the domestic economy and industry overall, regardless of size.

Some have raised the possibility that SsangYong Motor, which is currently facing a severe liquidity crisis including recent audit opinion rejections from accounting firms, might receive ISF support. SsangYong Motor employs over 5,000 people, and if it fails to overcome the current crisis, the ripple effects on related industries and the regional economy are expected to be considerable. The key issue is whether the fund support can help secure its self-sustainability.

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