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| Passenger jets from the nation's low cost carriers are at Gimpo International Airport in Seoul, on July 28. Concerns are growing over mass layoffs of LCC employees amid longer-than-expected virus shocks. Yonhap |
KDB unlikely to salvage sagging low cost carriers
By Lee Min-hyung
The nation's low cost carriers (LCC) ― hit worst by the coronavirus spread ― are teetering on the brink of collapse in the wake of the government's ill-prepared policies.
In 2019 alone, the Ministry of Land, Infrastructure and Transport granted aviation licenses to three new LCCs. At that time, concerns surfaced over the "over-issuance" of the licenses as this increased the number of local LCCs to nine, which surpasses most other countries with bigger population and land area than Korea.
But with the COVID-19 panic sweeping across the nation and paralyzing their business operations due to the worldwide travel restrictions, most major LCCs ― such as Jeju Air and Jin Air ― have started to report operating losses of tens of billions of won in the first half of the year.
They are seeking additional financial support from state-run lenders ― including the Korea Development Bank (KDB) ― but the lender remains firm in its determination not to provide any immediate support for the sagging LCCs.
The lender even excluded LCCs from a list of companies receiving the 40 trillion won in coronavirus relief funds amid the judgment that other industries ― such as automotive and shipbuilding ― were in more dire need of the financial aid than LCCs.
But the lender is also expressing discomfort over why it has to support the LCCs after the land ministry granted "reckless" licenses to emerging players without considering their business capability and market restraints carefully.
"LCCs are in desperate need of financial support from relevant relief funds by state-run lenders to tackle the ongoing crisis," an official from the industry said. But the KDB is not considering doing so for now, as it deems the main reason for their collapse is due to the ministry's wrong decision to foster the industry with a view to generating outcomes in terms of job creation, according to the official.
A KDB spokesman also raised questions over the competitiveness of the existing LCCs here, saying the number needs to be downsized in consideration of the nation's market size. The number of LCCs here exceeds that of Japan which has a larger population and territory. The United States also has the same number of LCCs as Korea.
"We are leaving open the possibility of providing financial support to sagging LCCs, but no specific action plans have not been drawn up for now," an official from the lender said.
The KDB and Export-Import Bank of Korea (Eximbank), another state-run lender, were supposed to provide 170 billion won to Jeju Air which overturned its decision recently to take over Eastar Jet. But with Jeju Air dropping the plan, the lenders' move to provide financial aid ended up nowhere.
Despite the dismal financial situation of Eastar Jet, the KDB is not considering offering any immediate financial aid to the airline, as the company is in a state of "total capital impairment" and has low competitiveness for survival even after the coronavirus shock comes to an end.
This is in contrast to KDB's active support of the nation's two largest airlines ― Korean Air and Asiana Airlines ― whose businesses have also fallen victim to the pandemic. In July, the bank decided to provide one trillion won out of the 40-trillion won relief fund to Korean Air.
Major LCCs ― such as Jeju Air, Jin Air, T'way Air and Air Busan ― all reported losses in the second quarter on the fallout from the global pandemic shock. Jeju Air, the nation's largest LCC, reported an 85.4 billion won operating loss during the April-June period, the biggest quarterly loss in its history. Things were no different for the others. Jin Air reported a 59.6 billion won operating loss during the same period, and the other two airlines also saw their deficits widen.
"LCCs need to take self-rescue measures to attract more capital (from the state-run lender or the government)," KDB Vice President Choi Dae-hyun told reporters in a recent online press conference.
LCCs in deadlock
Cornered LCCs have in recent months been in emergency mode and taken all available measures to cut fixed costs.
Starting from early this year, most of them started accepting paid or unpaid leave requests from employees to minimize the virus shock. But with the pandemic expanding into a worldwide economic crisis, they are busy trying to persuade the government to offer aid packages.
Officials from the LCCs said the situation is far worse than has been reported, as their deficits continue to increase even as COVID-19 is showing signs of subsiding here.
"A pilot from one of the major LCCs here recently attempted suicide amid a dismal outlook for the industry's near-term rebound," an official from a local airline said.
"Being a pilot is widely perceived as a specialized job that requires a license and guarantees a high salary. But the latest incident shows how desperate the situation is in the LCC industry."
Major LCCs are requesting government support as the last resort for their survival, the official said.
"They continuously underline the need for their survival, as the market may be engulfed by overseas airlines if the status quo continues and more LCCs go bankrupt."
Eastar Jet is on the verge of collapse after Jeju Air decided to stop its takeover of the airline.
The union of Jin Air, the nation's second largest LCC, is also joining in to win more financial support from the government.
"We are trying to justify why we need support from the government, but the outlook for our short-term rebound appears very cloudy," an official from the airline said.
"The issue surrounding the excessive number of LCCs stems from the government's decision, not ours. It is unfair for the financial authorities to stop offering support for sagging airlines by taking issue with the matter."
