Boeing and Delta Join Zombie Companies Amid COVID-19... US Zombie Debt Reaches 1,500 Trillion Won

Bloomberg Analysis Results... About 200 More Zombie Companies After COVID
"Debt Also Increased... Will Burden the US Economy for Years"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] Major U.S. corporations such as Boeing, Delta Air Lines, and ExxonMobil, which suffered performance setbacks due to the COVID-19 pandemic, have joined the ranks of 'zombie companies.' This means their operating income is insufficient to cover interest expenses. Moreover, with massive liquidity, the total debt held by U.S. zombie companies has exceeded 1,500 trillion Korean won, raising concerns that this will burden the U.S. economy for years to come.

On the 17th (local time), Bloomberg reported that after examining the financial status of 3,000 U.S.-listed companies, about 200 companies, including major airlines and oil firms, were newly classified as zombie companies following the COVID-19 crisis. Bloomberg added that when including previously existing zombie companies, the proportion of zombie companies among the 3,000 firms is about 20%. Bloomberg analyzed that by comparing the projected operating income over the next 12 months of companies within the Russell 3000 Index to their interest expenses, approximately one-sixth, or 527 companies, are expected to generate income less than their interest costs.

Boeing was hit hard by the suspension of 737 Max flights and a halt in orders due to COVID-19. Delta Air Lines also suffered from a sharp decline in demand caused by travel restrictions. The revenues of these companies plummeted this year, with Delta Air Lines experiencing a decrease of up to 80%.

Low interest rates also led to an increase in debt levels. Boeing accumulated more than $32 billion in debt this year alone, while Delta Air Lines and ExxonMobil's debts grew to $24.2 billion and $16.2 billion, respectively. The world's largest cruise operator, Carnival, and the major department store chain Macy's also saw their debts reach $14.8 billion and $1.2 billion, respectively. Including these, Bloomberg reported that the total debt held by U.S. zombie companies amounts to $1.36 trillion (approximately 1,504 trillion Korean won). This level surpasses twice that of 2009, when the global financial crisis had a significant impact. As debt increases and net profits decline, it has become difficult to cover interest expenses.

Considering the resurgence of COVID-19, this trend is expected to continue for the time being. An increase in zombie companies leads to deteriorating productivity and reduced investment and employment, resulting in diminished growth potential.

Experts pointed out that this situation will burden the U.S. economy and negatively affect its recovery. Large-scale fiscal and monetary policies have been implemented to prevent corporate bankruptcies and avoid a recession in the short term, but there are concerns that capital will flow into unproductive companies, slowing employment and growth.

Thorsten Slok, Chief Economist at Apollo Global Management, said, "Now is the time to ask, 'What are the unintended consequences?'" He added, "The U.S. Federal Reserve intervened for the sake of stability. They knew they would create zombies. Now the question is, what about the companies that are still alive, which would have otherwise gone out of business if not for this intervention?"

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