South Korean airlines are paying about 3 trillion won (US$2.8 billion) of annual lease fees to overseas leasing companies in order to introduce new aircrafts due to the fact that there is no leasing firms dealing with aircrafts in South Korea.
According to the data from the office of Minjoo Party lawmaker Ahn Ho-young of the Land Infrastructure and Transport Committee on Feb. 1, domestic airlines introduced a total of 94 new airplanes from 2013 to 2016 and 68 percent of them used an operational lease. An operational lease is a process where leasing companies purchase aircrafts and airlines borrow aircrafts with monthly lease fees.
Domestic low cost carriers (LCCs) have introduced airplanes completely with an operational lease. Asiana Airlines has also introduced 13 out of 18 aircrafts through an operational lease. Korean Air, which has relatively excess cash, is leasing only 8 out of 33 aircrafts.
The ratio of domestic airlines’ operational leases is on the rise every year. The figure increased from 40.8 percent in 2010 to 54.3 percent in September last year. According to the data from the Ministry of Land, Infrastructure and Transport (MOLIT), domestic airlines are planning to bring in a total of 140 aircrafts between 2017 and 2020 and the ratio of their operational leases reach 65 percent, or 91 aircrafts.
An official from the office of lawmaker Ahn said, “According to the data from the MOLIT, domestic airlines are paying 3.2 trillion won (US$2.98 billion) to foreign leasing companies every year, which is about 15 to 17 percent of their annual sales. The figure is much higher than an average of global leading airlines at 12 percent.” Since there are no South Korean leasing firms, domestic airlines depend entirely upon foreign leasing companies to introduce new aircrafts and have no choice but to pay more lease fees due to a limited negotiating power.