Jeju Air to Raise 320 Billion KRW Through Paid-in Capital Increase for Aircraft Financing

[Asia Economy Reporter Hyunseok Yoo] Jeju Air is conducting a paid-in capital increase worth 320 billion KRW. This is interpreted as a fund-raising effort for the introduction of Boeing B737-Max aircraft under contract. In particular, the debt ratio, which had reached 864%, is also expected to decrease through this fund-raising.

According to the aviation industry on the 31st, Jeju Air will issue a total of 27.23 million shares at 11,750 KRW per share, raising a total of 320 billion KRW through a rights offering followed by a general public offering of forfeited shares.

Jeju Air will use all the funds raised from the paid-in capital increase for facility investment. Specifically, this includes aircraft and aircraft materials. This year, 103.9 billion KRW will be used for aircraft and 5.9 billion KRW for aircraft materials, totaling 109.8 billion KRW. Next year, 163.2 billion KRW and 20.3 billion KRW will be invested respectively, totaling 183.5 billion KRW, and in 2024, 25.3 billion KRW and 20.2 billion KRW will be invested, totaling 45.6 billion KRW. The total planned investment amount is 338.8 billion KRW, and any shortfall will be covered by internal funds and borrowings from financial institutions.

This fund-raising is interpreted as a capital procurement in accordance with the contract with Boeing. Jeju Air signed a purchase contract for 50 B737-Max aircraft (40 firm orders and 10 options) with Boeing in November 2018. The aircraft are scheduled to be introduced sequentially from next year. The total contract amount, including options, is approximately 5.519 billion USD.

However, due to the prolonged deterioration of performance caused by COVID-19, funds for contract execution were insufficient. Jeju Air recorded sales of 1.384 trillion KRW and an operating loss of 32.9 billion KRW in 2019, and has posted losses for four consecutive years, including sales of 207.4 billion KRW and an operating loss of 134.6 billion KRW in the first half of this year. As a result, accumulated deficits increased from 197.1 billion KRW in 2020 to 435.8 billion KRW in the first half of this year.

The paid-in capital increase is also expected to have an effect of reducing the debt ratio. When a paid-in capital increase is conducted, capital is expanded, thereby lowering the debt ratio. Jeju Air’s debt ratio, which was 351.4% in 2019, rose to 588.12% last year and 863.51% in the first half of this year. In particular, reliance on borrowings increased by nearly 12 percentage points from 38.8% to 50.61%.

However, the fact that the participation of the largest shareholder has not yet been decided remains a concern. This is because it is linked to the success of the paid-in capital increase and the decline in the largest shareholder’s stake. Jeju Air’s largest shareholder is AK Holdings, the holding company of the Aekyung Group, holding a 50.99% stake. If it does not participate, the stake is expected to fall to 47.40%. Jeju Air explained in its securities registration statement, "The participation scale is undecided," and "The final participation decision and subscription quantity will be determined through a board resolution of AK Holdings."

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