Korean Airlines' Government Support Rate at 7.1% of Assets "Far Lower Compared to Major Countries"

[Asia Economy Reporter Kim Hyewon] While the global aviation industry has been hit hard by the COVID-19 pandemic, it has been revealed that the scale of government support relative to domestic airlines' assets is lower than that of major countries.

According to an analysis by the Federation of Korean Industries on the 29th of the support status for the aviation industry in major countries due to COVID-19, the ratio of government support (KRW 3.2 trillion) to the assets of seven domestic airlines (KRW 44.9 trillion) was calculated at 7.1%. The government provided KRW 1.2 trillion to Korean Air, KRW 1.7 trillion to Asiana Airlines, and KRW 300 billion to low-cost carriers (LCCs), respectively.

On the other hand, when looking at the ratio of government support to major airline assets in countries such as the United States, France, and Germany, the order was Singapore Airlines (42.6%), Air France (22.8%), Lufthansa (21.1%), and Southwest (12.4%).

The United States has supported passenger airlines with USD 25 billion (approximately KRW 30.4 trillion) through the Payroll Support Program (PSP) to protect jobs in the aviation industry. 70% of the support is provided as a grant, and the remaining 30% as a loan. Up to 10% of the loan amount must be repaid in the form of stock, but the government-acquired shares are prohibited from exercising voting rights. According to the U.S. Treasury Department, USD 21.3 billion (approximately KRW 25.6 trillion) has already been provided to six major airlines including American and Delta. This is about 10% of the airlines' assets.

Germany decided to support Lufthansa with EUR 9 billion (approximately KRW 12 trillion) using the Industrial Stabilization Program. This is about 21% of Lufthansa's asset size (EUR 42.7 billion). Of the EUR 9 billion, EUR 300 million was used by the government to purchase a 20% stake in Lufthansa. The German government stated that it is a principle not to exercise voting rights in ordinary situations.

France announced a plan on the 9th to support the aerospace industry with EUR 15 billion (approximately KRW 20 trillion) and decided to invest EUR 7 billion (approximately KRW 9.5 trillion) only in Air France. The program also included support for aircraft manufacturer Airbus.

Singapore Airlines received a bailout of USD 13 billion (approximately KRW 16 trillion). The governments of Italy and Portugal plan to inject EUR 3 billion (approximately KRW 4 trillion) and EUR 1.2 billion (approximately KRW 1.6 trillion), respectively, to nationalize Alitalia and TAP Air Portugal, which are facing management difficulties.

This year, the global aviation industry is facing the worst crisis in history. Although it successfully rebounded quickly during past demand contraction crises such as the 9/11 attacks (2001), SARS (2002), and the global financial crisis (2008), the consensus is that it is difficult to even estimate the recovery time for this COVID-19 crisis. The International Civil Aviation Organization (ICAO) expects global air passenger demand to decrease by up to 71% compared to the previous year. The International Air Transport Association (IATA) forecasts that the global airlines' net loss will reach USD 84.3 billion (approximately KRW 100 trillion) this year. South Korea is also experiencing a crisis, with international passenger traffic in May this year plummeting 98.2% compared to the same period last year, and total passenger traffic decreasing by 80.3%.

Yoo Hwan-ik, head of corporate policy at the Federation of Korean Industries, emphasized, "Major countries are prioritizing support for the aviation industry under the recognition that it is an important key industry. South Korea should also actively utilize the Industrial Stability Fund, Special Purpose Vehicle (SPV) for bond purchases, and expand the scale of support, while supporting tax reform and market-driven industrial restructuring to maintain the competitiveness of our aviation industry in the post-COVID era."

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