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Liquidity Shortage of Asiana Airlines Attributed to Excessive Government Regulations
Government Advised to Promote Deregulation
Liquidity Shortage of Asiana Airlines Attributed to Excessive Government Regulations
  • By Jung Min-hee
  • November 12, 2019, 08:52
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The South Korean government is advised to promote deregulation of the aviation industry.

Korean Air CEO Woo Ki-hong said on Nov. 11 that the South Korean government’s excessive regulations and excessively customer-oriented policies led to the current issues related to Asiana Airlines.

“Trade disputes between South Korea and Japan have deteriorated South Korean airlines’ business conditions since this past summer and the government’s regulations and policies are exacerbating their difficulties,” he said at a policy forum on how to respond to Japan’s export curbs and enhance the competitiveness of the air transportation industry, adding that the government is causing the airlines to compete more and more with the aviation industry already in a dire situation as seen in the case of Asiana Airlines, which is in the process of sale due to a lack of liquidity, and the government needs to have a more balanced view in promoting the interest of customers so that the interest is not at the sacrifice of airlines’ interest.

Participants of the forum said in chorus that deregulation is necessary for any further growth of the local aviation industry. “Tariffs on aircraft parts, acquisition tax and property tax issues related to aircraft investment, accession to the Agreement on Trade in Civil Aircraft of the WTO, and so on have yet to be dealt with,” said Korean Air managing director Kim Seung-bok, continuing, “Those are affecting the flexibility of local airlines’ pricing policies and blocking them from outdoing foreign airlines.”

Each South Korean airline with a total asset of five trillion won or more is exempt from acquisition and property taxes in acquiring aircraft and the tax exemption is effective until 2021. In the United States, Japan, China, Britain and Europe, in contrast, no taxes are imposed on civilian aircraft based on a conclusion that they are important resources in terms of national defense, diplomacy and economy.

The participants also pointed out the necessity of zero tariffs on aircraft parts, asserting that accession to the Agreement on Trade in Civil Aircraft of the WTO would lead to a free aircraft parts trade and tax benefits. In response, Kim Ki-dae, Director General for Aviation Policy at the Ministry of Land, Infrastructure and Transport, said that the zero tariffs, though right in principle, require more discussions as the other ministries including the Ministry of Trade, Industry and Energy have different views on component industry growth and the like.

In the meantime, the Korea Civil Aviation Association recently announced that Japan’s export curbs would lead to an international flight sales loss of at least 783 billion won on the part of South Korean airlines and a year-on-year decline of 53 percent in the number of low-cost carrier (LCC) customers visiting Japan. “In October this year alone, the number of customers dropped 43 percent year on year in flights to and from Japan and the rate of decrease amounted to 53 percent when it comes to LCCs,” it explained, adding, “This year’s international flight sales loss is estimated at 783 billion won or more.”