KDB and KEXIM to Provide 1.2 Tril. Won to Korean Air
Korean Air is to receive 1.2 trillion won in liquidity support from the South Korean government, but it is still in a financially precarious position.
On April 24, Korea Development Bank (KDB) and the Export-Import Bank of Korea announced that they would provide Korean Air with 200 billion won in operation funds and purchase 700 billion won worth of asset-backed securities (ABSs) and 300 billion won (10.8 percent stake) worth of permanent bonds. In addition to the 1.2 trillion won liquidity support, KDB and the Export-Import Bank has decided to help the airline refund maturing corporate bonds worth 200 billion won and acquire corporate bonds worth 200 billion won which will mature in the second half of 2020.
Despite the government’s big financial support plan, Korean Air has a gloomy future. Even if the government-owned banks take over ABSs worth 700 billion won and help it refund corporate bonds that will mature in late June, the airline still has to pay more than one trillion won of debt within one year.
In addition, 200 billion won in operating funds is less than half of Korean Air's annual fixed costs of 400 billion won to 500 billion won. Of course, if the new coronavirus crisis subsides in the second half of 2020, the airline will be able to escape from its liquidity crisis. Otherwise, Korean Air can hardly survive.
In addition, Korean Air has to pay a lease fee of 1.7 trillion won this year and borrowings amounting to 3 trillion won. Industry analysts say Korean Air may not be able to last for more than three months despite this support.