Park right after proposing a self-rescue plan... Embarrassing situation for Korean Air

Seoul City is promoting a plan to change the Korean Air site, currently an empty lot in Songhyeon-dong, Jongno-gu, into a 'cultural park' under urban planning facilities. On the 28th, the city announced that it submitted the 'Songhyeon-dong Korean Air Site Park Decision Plan' for consultation at the Urban and Architecture Joint Committee held on the 27th. The decision plan includes changing the site, currently designated as a special planning zone within the Bukchon district unit plan, into a cultural park. The photo shows the Korean Air site in Songhyeon-dong, Jongno-gu, Seoul, which Korean Air is currently promoting for asset sale. Photo by Hyunmin Kim kimhyun81@

[Asia Economy Reporters Yuri Kim and Jehun Yoo] Seoul City has declared its intention to convert the last "golden" land in the city center, the Songhyeon-dong site in Jongno-gu, into a park, delivering a severe blow to Korean Air. Cornered by the COVID-19 pandemic, Korean Air faces a tense situation as it may have to part with essential core assets critical to maintaining its business if it cannot sell the Songhyeon-dong site at a fair price, making it increasingly pressured by Seoul City's repeated demands.

According to industry sources on the 28th, Korean Air selected a consortium of Samjong KPMG and Samsung Securities last month as the lead agents for the sale of the Songhyeon-dong site (36,642㎡) and building (605㎡) and is currently proceeding with related procedures. The sale of the Songhyeon-dong site is considered a key part of Korean Air's self-rescue plan.

Earlier, when Korean Air faced a liquidity crisis due to the COVID-19 outbreak, it requested support from the government and creditors and prepared a self-rescue plan. The creditors demanded a capital increase of about 2 trillion won by the end of next year, and Korean Air decided to conduct a paid-in capital increase of about 1 trillion won and sell the Songhyeon-dong site and Wangsang Leisure Development Co., Ltd.

The Songhyeon-dong site is the largest asset among those Korean Air has put up for sale. It adjoins Gyeongbokgung Palace and is the last remaining vacant land in the city center. However, Seoul City's declaration to convert this site into a park has posed an immediate obstacle as soon as Korean Air's self-rescue plan was finalized. Land prices are mostly based on publicly announced prices, and if the land use changes to a cultural park where construction is prohibited, the appraised value may fall below even the publicly announced price. The publicly announced land price for the Songhyeon-dong site was 8,457,000 won per square meter (as of 2019). Considering the site area of 36,642㎡, this amounts to about 310 billion won. So far, the industry has estimated the market price of this land to be at least 500 billion won, and as high as 700 to 800 billion won based on the publicly announced price. Korean Air needs to secure the highest possible price to increase capital and refinance loans, but potential buyers are unlikely to pay such prices for land with restricted use. Some speculate that Seoul City is attempting to lower the land price by changing the land use designation for this reason.

Seoul City plans to acquire the Songhyeon-dong site through a private contract in the future, but in this case, Korean Air is unlikely to receive a fair price. A Seoul City official said, "It is a matter that requires appraisal, but we expect the price to be lower than the market figure (500 billion won) being discussed."

Industry insiders express concerns that if Korean Air fails to secure sufficient funds through the sale of the Songhyeon-dong site, it may consider selling even essential assets necessary for business continuity. Korean Air is reportedly reviewing restructuring not only of non-core assets such as the LA Wilshire Grand Hotel but also core business units critical to its airline operations, including in-flight catering, aircraft maintenance (MRO), and mileage businesses. This is the scenario Korean Air most wants to avoid.

If the tug-of-war between the two sides intensifies, legal disputes cannot be ruled out. A Korean Air official lamented, "It's like asking for blood donation when you are struggling without money just before surgery in the emergency room," adding, "Since the government is fully supporting the aviation industry with a 40 trillion won Industrial Stabilization Fund, it should show consistent actions rather than just symbolic gestures."

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