Government to Inject 2.4 Tril. Won into Asiana Airlines
Creditors of Asiana Airlines declared on Sept. 11 that Kumho Industrial’s contract with HDC Hyundai Development to sell the struggling airline has been canceled.
Korea Development Bank (KDB), the main creditor of Asiana Airlines, said in a briefing that the government will immediately inject 2.4 trillion won from the Key Industry Stabilization Fund into the airline to normalize its operation.
The creditors will assume control of the airline through a debt/equity swap. KDB and the Export-Import Bank of Korea hold 800 billion won worth of perpetual bonds issued by Asiana Airlines. When these bonds are converted into shares, the two creditors will become Asiana’s largest shareholder with a 37 percent stake. They are expected to resume sale efforts after restructuring the deficit-ridden airline.
The decision to inject 2.4 trillion won into Asiana was made at a meeting of government officials, which was attended by Minister of Land, Infrastructure and Transport Kim Hyun-mi and KDB Chairman Lee Dong-gull.
The creditors also decided to provide 120 billion won to Kumho Buslines, an affiliate of Kumho Asiana Group which is in financial difficulties due to the COVID-19 pandemic.
The creditors have prepared a Plan B to normalize the operation of Asiana Airlines. They will implement a sweeping restructuring plan, which will include adjustment of the routes the airline serves, cost-cutting and downsizing. They will also consider separate sales of Asiana Airlines’ affiliates, including Air Busan and Air Seoul.
Asiana Airlines have more than 2 trillion won in short-term loans that fall due over the next one year. In particular, it could face redemption asset-backed securities (ABS) worth 700 billion won, if its credit rating is downgraded due to the collapse of the sale deal. This is why the creditors decided to immediately inject 2.4 trillion won into the airline.