Yu Jeung-mu San and Legal Management... Crisis of LCC

Urgent Need for Funding... Low-Cost Airlines Facing Survival Crisis

Kim I-bae of Jeju Air, Han Tae-geun of Air Busan, Jo Gyu-young of Air Seoul, Choi Jong-gu of Eastar Jet, Choi Jeong-ho of Jin Air, and Jeong Hong-geun of T'way Air, presidents of low-cost carriers (LCCs), are waiting on the 22nd at the National Assembly to meet with Song Ok-ju, Chairperson of the National Assembly's Environment and Labor Committee. The LCC presidents requested an extension of the employment retention subsidy. Photo by Yoon Dong-ju doso7@

[Asia Economy Reporter Yoo Je-hoon] Low-cost carriers (LCCs) are facing a critical juncture due to the prolonged COVID-19 pandemic. Some airlines have halted planned rights offerings to secure liquidity, while others are increasingly expected to enter court receivership.

According to industry sources on the 30th, T'way Air announced the suspension of its 50 billion KRW rights offering, which was being conducted through a shareholder allocation followed by a general public subscription for forfeited shares. The suspension was due to the low subscription rate from the largest shareholder, T'way Holdings (58.32%). T'way Holdings' subscription rate was 25.61%, falling short of the employee stock ownership association (56.69%) and general existing shareholders (86.67%).

With the suspension of the rights offering, T'way Air is expected to face a cash crunch. As of the first quarter, T'way Air's cash and cash equivalents (including cash, cash equivalents, and short-term financial assets) stood at approximately 85.5 billion KRW, less than half compared to the end of last year (about 184.6 billion KRW). Given that a deficit of several tens of billions of KRW is inevitable in the second quarter as well, this amount is presumed to have decreased further.

Reflecting this situation, T'way Air recently accepted applications from all employees for unpaid leave conversion. While there is a possibility of reverting to paid leave depending on the extension of employment retention subsidies, this indicates an increasingly uncertain management environment. A T'way Air official stated, "For now, there is no major problem as cash inflows continue due to domestic flights during the peak season," adding, "We will explore various methods to secure necessary funds in the future."

Eastar Jet, whose merger and acquisition (M&A) fell through, is now expected to enter court receivership. Kim Hyun-mi, Minister of Land, Infrastructure and Transport, appeared before the National Assembly Land, Infrastructure and Transport Committee yesterday and said, "It seems Eastar Jet will apply for court receivership, and we are working with the Ministry of Employment and Labor to find follow-up measures." Eastar Jet, already in a state of complete capital erosion with unpaid debts amounting to 170 billion KRW, has no other options besides court receivership. The company is continuing talks with third-party investors to increase the possibility of rehabilitation and has also requested support from local governments such as Jeollabuk-do.

Some optimistic views suggest that since Eastar Jet has few tangible assets, it could undergo rehabilitation procedures under creditor management after court receivership. However, with at least 30 billion KRW needed just to resume operations and ongoing deficits due to weak demand caused by COVID-19, the possibility of liquidation is considered higher if a meaningful investor is not found.

This crisis among LCCs is spreading to other companies such as Air Busan and Air Seoul. Their parent company, Asiana Airlines, is facing the risk of a failed M&A. Industry insiders widely speculate that if the deal ultimately fails, the scenario will involve "creditor management → restructuring → separate sale." Creditors including KDB Industrial Bank may reduce the company's size through large-scale restructuring before reselling.

In this case, the affiliated LCCs will also inevitably undergo significant restructuring and separate sales. Both companies are currently in partial or complete capital erosion. Industry sources believe that under these circumstances, the two companies could become targets for merger or liquidation. An industry official said, "In the case of Air Busan, the situation is somewhat better as local hometown companies and minority shareholders hold 44% of the shares, but Air Seoul could face merger or liquidation if no buyer emerges."

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