[Q&A] Ministry of Land, Infrastructure and Transport, "Up to 300 Billion KRW Proactive Support for LCCs in Crisis Due to COVID-19"

Aviation Industry: "More Difficult Situation Due to Lack of Alternative Routes Compared to Past Crises"
Ministry of Land, Infrastructure and Transport: "Will Take Proactive Support Measures"... Jin Air Sanctions Lifted Pending "Review of Management Culture Improvement Plan Results"

▲ Kim Sang-do, Director of Aviation Policy Bureau, Ministry of Land, Infrastructure and Transport

[Asia Economy Reporter Lee Chun-hee] The government has recently stepped up to provide up to 300 billion KRW in financial support to the aviation industry, which is facing a crisis due to the spread of COVID-19 infections. This support, provided through loans from the Korea Development Bank, represents the total amount calculated as necessary for the low-cost carrier (LCC) industry.

Kim Sang-do, Director of the Aviation Policy Office at the Ministry of Land, Infrastructure and Transport (MOLIT), explained at a briefing held at the MOLIT press room on the afternoon of the 17th, "During the 9/11 terrorist attacks in 2001, 250 billion KRW was provided as emergency financial loans through a special account," adding, "Since there are no alternative routes, the industry is saying this crisis is more difficult, so we have moved faster to provide funding than before."

Regarding the 300 billion KRW scale, Director Kim said, "It is something prepared proactively," interpreting it not as an immediate support but rather as support within that range for potential future liquidity shortages.

Regarding Jin Air, which is facing difficulties due to MOLIT sanctions combined with the current COVID-19 situation, Director Kim stated, "We understand there has been significant recent progress in the management culture improvement plan," but expressed that it is difficult to discuss lifting sanctions solely because of the current situation.

The following is a Q&A with Kim Sang-do, Director of the Aviation Policy Office at MOLIT.

- From which account will the 300 billion KRW support for LCCs be disbursed?

▲ The 300 billion KRW loan for LCCs will be made using various financial programs operated by the Korea Development Bank. The amount to be loaned is decided through a credit review process and is not disbursed from the government budget.

- How was the budget scale of 300 billion KRW determined?

▲ This is based on applications received from the LCC industry regarding the amount needed, and the actual amount is slightly less than 300 billion KRW. Each airline has different scales of assets that can be liquidated, and some airlines can obtain loans from commercial banks. The timing when liquidity is needed also varies.

- Have there been similar financial support measures before?

▲ During the 9/11 terrorist attacks in 2001, 250 billion KRW was provided to Korean Air and Asiana Airlines through an emergency financial special account. There was no emergency operating fund support during SARS or MERS outbreaks. At that time, SARS occurred in China but alternative routes could be operated, and MERS occurred in the Middle East, so alternatives were possible. However, currently, the Japan route has not recovered, Southeast Asia is oversupplied, and flights to China are currently suspended. The industry is saying that because there are no alternative routes, the situation is more difficult, so funding support has been provided faster than before.

- Why was support provided only to the LCC industry this time, whereas previously Korean Air and Asiana Airlines were supported?

▲ At that time, there was a duopoly system without LCCs. Now, Korean Air and Asiana Airlines are not eligible for support. Both companies do not want support. They are considered to have sufficient financial capacity to respond. Korean Air is known to be issuing asset-backed securities (ABS) worth up to 600 billion KRW, so it can raise funds in the market. Asiana Airlines still has remaining loan limits with the Korea Development Bank.

- If loans are needed, quick support is essential. How long is the review period expected to take?

▲ (Kim Itak, Aviation Policy Officer) I understand that the review process for support during the 9/11 attacks took about three months. However, the 300 billion KRW is a kind of 'ceiling' set, meaning that if an airline experiences liquidity shortages at any time, urgent support within the 300 billion KRW limit will be provided.

▲ Basically, each airline will apply its own self-help measures, and if additional funds are needed, additional loans will be executed through the Korea Development Bank. From MOLIT’s perspective, since the industry is in difficulty, we will work closely with the Financial Services Commission and the Korea Development Bank to expedite the process faster than usual to provide support as quickly as possible upon application.

- Most of the costs waived or deferred will be borne by Incheon International Airport Corporation and Korea Airports Corporation. What is the expected cost and what are the compensation plans?

▲ This part will be borne by the two airport corporations. Basically, the airport corporations bear the cost, and it is difficult for the government to provide direct support. We are looking for support measures, but this requires consultation with budget authorities. If this measure causes deterioration in financial statements, we are promoting a plan to consider this during management evaluations and provide incentives accordingly.

- The industry expresses regret that since it is a deferral, not a waiver, the payment burden still exists. Was consideration given to waivers?

▲ For now, we are monitoring the situation and aim to reduce the immediate payment burden through deferral. If air travel demand does not recover, landing fees will be reduced by 10%. Similarly, if the situation worsens and coping ability becomes difficult, additional waivers can be considered. However, at this stage, deferral was prioritized over waivers.

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, is speaking at the 'COVID-19 Response Economic Ministers' Meeting and the Meeting of Relevant Ministers on Japan's Export Restrictions' held on the 17th at the government Seoul office video conference room. Photo by Moon Ho-nam munonam@

- Jin Air is facing greater difficulties as MOLIT sanctions have been prolonged and coincide with the current situation. Has there been any discussion about lifting the sanctions?

▲ Jin Air is experiencing difficulties due to long-term sanctions and recent demand declines. We understand there has been significant recent progress regarding the management culture improvement plan promised to the public by Jin Air. We will review the lifting of sanctions after seeing concrete implementation results.

- Passengers complain that cancellation fee waivers do not apply when traveling to Southeast Asia or Japan outside China. Is there any plan by the government to address this?

▲ Currently, there is no separate support plan. The most direct target of the support measures is the demand decrease on the Korea-China route. Flights have been reduced by 77%, and the burden of cancellations and refunds is very high. From the passenger’s perspective, cancellations and refund requests arise as the virus spread from China to Southeast Asia. However, if airlines accept all requests, they will face difficulties in financial structure and other aspects, so it is difficult to accommodate all. Government support measures do not include support for airlines to cover fees or refund amounts on routes other than Korea-China.

- Some airlines are placing employees on unpaid leave. Is there any measure to address this?

▲ This is considered the responsibility of the companies. It is difficult for the government to provide support through taxes or other means.

- The decision was made to defer payment of fines due to administrative sanctions. Can this be seen as a measure against COVID-19?

▲ The industry has expressed that fines are burdensome. Last year, fines totaling 6.125 billion KRW were imposed, and the industry said that in the current situation, this is a burden on cash flow. Therefore, while the fines themselves cannot be waived, payment has been deferred for one year to alleviate immediate difficulties.