Government banks rescue Korean Air Lines
Published: 24 Apr. 2020, 19:42
Korean Air Lines aircrafts sit on tarmac at Incheon International Airport on Friday. The airline on Friday received 1.2 trillion won (￥971 million) of emergency funding from Korea Development Bank and the Export-Import Bank of Korea. [YONHAP]
“Korean Air Lines is expected to face liquidity problems around May 15,” said Choi Dae-hyun, KDB vice president. “And we are providing funding before that time.”
The financial support comes just three days after the policy banks announced they will lend 1.7 trillion won (＄1.51 billion) to Asiana Airlines, which is in the process of being acquired by an HDC Hyundai Development-led consortium.
The two banks will be supporting Korean Air Lines with a total of 1.2 trillion won, they announced Friday. They will buy 700 billion won of asset-backed securities and 300 billion won worth of perpetual convertible bonds.
They will also be lending the company 200 billion won for management and fixed expenses.
If the convertible notes are exercised, the state banks could end up owning 10.8 percent of the carrier.
“We’ll be able to breathe at least until June,” said Jang Sun-wook, a spokesperson for Korean Air Lines.
The conditions of the package require the airline does its best to implement self-help measures, including maintaining employment and improving management.
In response to the support, Korean Air Lines on Friday said it will focus on overcoming the crisis it faces, which includes ending the war over Hanjin KAL, which owns 30 percent of Korean Air Lines.
Hanjin Group Chairman Cho Won-tae and his sister Cho Hyun-ah, a former Korean Air Lines executive, have been fighting over control of Hanjin KAL and forming alliances with other shareholders, which have aggressively purchased company shares. The airline also promised to prioritize stable employment and secure more funds by selling assets.
As part of the self-rescue plan, Korean Air Lines put more than 70 percent of its workforce on leave at reduced salaries earlier this month. The forced vacations will last for six months until October. It may also be issuing more shares, but that has not been confirmed.
A Korean Air Lines property in Songhyun-dong in Jongno District, central Seoul, is up for sale.
Currently, 90 percent of the company’s aircraft are grounded due to the coronavirus. In March alone, passengers traveling on Korean carriers dropped an estimated 91.5 percent compared to the same period a year earlier, to 648,000.
Korean Air Lines has halted the operation of most of its international routes, which represented about 94 percent of its passenger business.
“The stimulus package is expected to solve the liquidity problem in the first half of the year,” said Prof. Hur Hee-young, who teaches business at Korea Aerospace University. “But the coronavirus is an international issue, and the government will need to provide larger scale support if it continues throughout the year.”
BY JIN MIN-JI [[email protected]]
with the Korea JoongAng Daily
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