Jeju Air May Apply for Kian Fund as Early as Today

Operation Deliberation Committee for Kian Fund to Meet on 15th... Discussion on Jeju Air Support Plan
Asiana and Others Likely to Join Application Soon

[Image source=Yonhap News]

[Asia Economy reporters Kangwook Cho and Jehun Yoo] Jeju Air, which is fighting to secure liquidity amid the novel coronavirus disease (COVID-19) crisis, is expected to apply for the Industrial Stabilization Fund (ISF) as early as the 13th. Industry insiders anticipate that other domestic airlines facing similar difficulties will soon join the queue to apply for the ISF.

According to the aviation industry, Jeju Air plans to submit its application for ISF support to the government ahead of the ISF Operation Deliberation Committee meeting scheduled for the 15th. A Jeju Air official stated, "We will complete the application as early as today (the 13th), or at the latest before the 15th."

The ISF Operation Deliberation Committee will also begin reviewing Jeju Air’s ISF support at its meeting on the 15th. Accordingly, a decision to inject ISF funds into Jeju Air could be made as early as next week. Kim Joo-hoon, chairman of the ISF Operation Deliberation Committee, said, "Although we planned to hold the committee meetings biweekly, if necessary, we will hold a meeting next week to produce quick results."

Initially, financial authorities and the Korea Development Bank excluded low-cost carriers (LCCs) from the ISF support targets. The plan was to support mainly major airlines through the ISF and to use a separately prepared financial package worth 135 trillion won for LCCs.

However, more than 100 days after its launch, no companies had requested funding, leaving the ISF effectively "closed for business." Criticism arose that the policy design was flawed because the ISF requirements were too stringent, deterring applicants.

In particular, unlike major airlines that have diversified portfolios including air cargo, LCCs have continued to post losses, raising concerns about potential bankruptcies. In fact, Jeju Air recorded a net loss of 100.6 billion won in the second quarter, marking its fifth consecutive quarter of losses. The market estimates that it posted about 70 billion won in losses in the third quarter as well.

Given this situation, the Ministry of Land, Infrastructure and Transport requested ISF support for LCCs before the Chuseok holiday, and the ISF committee plans to discuss Jeju Air’s support proposal at the upcoming meeting. Chairman Kim said, "Concerns about LCCs have grown more than expected, leading to a shift toward using the ISF to provide support."

Financial authorities and creditors judge that Jeju Air meets the ISF support criteria. To apply for the ISF, companies must have at least 300 employees and total borrowings of 500 billion won or more. As of the first half of the year, Jeju Air had 2,744 employees and total borrowings of 655.5 billion won (including lease liabilities).

Jeju Air secured 150.6 billion won in new funds through a paid-in capital increase in August and is estimated to currently hold cash liquidity of about 240 to 250 billion won. However, short-term borrowings and current lease liabilities due within one year amount to about 260 billion won, exceeding this liquidity. Additionally, to cover costs such as aircraft lease fees, it is expected that Jeju Air will need an additional 140 to 150 billion won in cash over the next year. The audit by an accounting firm conducted prior to Jeju Air’s funding application has been completed.

Meanwhile, other domestic airlines urgently needing liquidity are also expected to soon join the ISF application queue following Jeju Air. For instance, Asiana Airlines has nearly exhausted about 3 trillion won of the 3.3 trillion won in borrowings it received from creditors and is likely to apply for ISF support soon. Previously, the ISF Operation Deliberation Committee approved up to 2.4 trillion won in funding support for Asiana Airlines.

An Asiana Airlines official said, "Depending on the speed of cash depletion, we may apply for the ISF as early as early next month." There are also forecasts that Korean Air may apply for the ISF around the end of the year.

While the liquidity injection is expected to relieve some of the domestic airlines’ financial burdens, the ISF’s high interest rate of "7% per annum plus alpha" is likely to pose a significant burden on the supported airlines. Professor Hee-young Heo of Korea Aerospace University said, "The reason airlines have delayed applying for the ISF despite their urgency is the high interest rate," adding, "The government should consider the scope and content of support for the aviation industry in this context."

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