Full-Scale Aviation Industry Restructuring: "Not Just Simple Cuts, But a Review of the Business Model"

M&A Collapse Looms for Asiana, LCCs Face Uncertain Skies

On the 3rd, the Eastar Jet Pilots Union, the Justice Party, and representatives of civic groups held a press conference in front of the National Assembly in Yeongdeungpo-gu, Seoul, criticizing the management's restructuring and workforce reduction plans and urging the maintenance of employment. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Yoo Je-hoon] The restructuring of the aviation industry is showing signs of intensifying, starting with the mass layoffs at Eastar Jet. Not only Asiana Airlines, which is on the verge of a failed merger and acquisition (M&A), but also the entire industry is facing growing rumors of restructuring.

According to industry sources on the 8th, Eastar Jet notified about 605 employees, approximately 50% of its total workforce, of their layoffs the day before. As a result, about 590 employees will remain at Eastar Jet, which means only about 36% of the total employees (1,616 as of the end of the first quarter) will retain their positions.

Eastar Jet calculated its workforce based on the number of aircraft to be retained (6 planes), excluding maintenance personnel. Specifically, for each aircraft, there are 12 flight crew members (6 captains and 6 first officers), 2 flight dispatchers, 25 cabin crew members, and 20 general staff. A company official stated, "This means only the minimum personnel necessary for resuming domestic flights have been retained," adding, "If some of the currently held aircraft are returned, maintenance personnel who were excluded from this round may also be subject to adjustment."

This mass layoff is attracting attention in the industry as it is the first large-scale restructuring since the outbreak of the novel coronavirus disease (COVID-19). Although it is the result of financial difficulties that began before COVID-19, the entire industry is struggling due to the pandemic, so no one can feel secure at this stage.

Asiana Airlines, which is likely to fail in its acquisition by HDC Hyundai Development Company, is also engulfed in rumors of large-scale restructuring. The scenario involves pursuing a resale after normalizing management through restructuring under creditor management. In this case, many believe that changes in management, adjustments in personnel and subsidiaries, and a reorganization of the business portfolio are inevitable.

Other low-cost carriers (LCCs) are not free from restructuring rumors either. The restructuring measures that could be implemented immediately include reductions in aircraft and personnel, similar to Eastar Jet. The separation and sale of subsidiaries is also considered a major option. A representative from a domestic LCC said, "The entire industry has suffered from profitability deterioration due to oversupply even before the COVID-19 crisis," adding, "Currently, we rely on capital injections such as paid-in capital increases, but it is questionable whether such endurance tactics will be possible next year."

Experts advise that, given the rapidly changing outlook of the aviation market due to COVID-19, the aviation industry needs to undertake structural improvements at this time. The International Air Transport Association (IATA) diagnosed in July that international air demand will only recover to last year's level by 2024. Since the current crisis could last at least 3 to 4 years, restructuring should evolve beyond simple personnel and aircraft reductions to include a review of business models and portfolios.

Professor Heo Hee-young of Korea Aerospace University said, "Although overshadowed by COVID-19, Asiana Airlines' downfall occurred before the crisis, and LCCs have also been suffering from oversupply for some time," adding, "Simple reductions in personnel and aircraft will leave the industry vulnerable to external shocks even if the market partially recovers, so this opportunity calls for a thorough consulting review of the entire business model."

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