Default Risk Looms Large
The credit ratings of asset-backed securities (ABS) issued by Korean Air and Asiana Airlines have been downgraded.
Korea Investors Service said on April 13 that it has lowered the ABS rating of Korean Air from “A” to “A-” and of Asiana Airlines from “BBB+” to “BBB.”
An airline issues ABS against the proceeds from future ticket sales. They are a key means of raising funds for aviation companies.
As of the end of March, the outstanding amount of ABS issued by Korean Air is estimated at some 1.3 trillion won and Asiana at nearly 470 billion won.
The agency said the recovery of the airlines’ ABS worsened in March after most countries around the world implemented strict entry restrictions to prevent a fast spread of COVID-19.
If the two airlines' ABS recovery remains low in the months to come, they could face early redemption demands, which will pose serious liquidity problems to them.