Even Large Corporations Struggle to Survive Three Months, Companies Face 'Chain Bankruptcy' Crisis

[Asia Economy Reporters Sohyeon Park, Changhwan Lee] "Companies face increasing risks of bankruptcy even if payment delays last only 2 to 3 months, but starting this May, the problems could become more serious."

As the complex crisis triggered by the novel coronavirus disease (COVID-19) becomes a reality, companies are facing threats to their very survival. Under the current circumstances, companies unanimously express that it is difficult to be optimistic about surviving for three months.

Especially in industries directly hit by COVID-19 such as automobiles, aviation, and travel, both large corporations and small and medium-sized enterprises are busy devising strategies to endure day by day while worrying about survival.

According to the industry on the 13th, most domestic airlines and travel agencies have effectively entered a state of temporary closure. Due to a sharp decline in customer demand caused by COVID-19, even if employees come to work, there is nothing to do, creating an urgent need to reduce fixed costs such as labor expenses.

The sense of crisis felt by the aviation industry is even greater. Low-cost carriers (LCCs) such as Jeju Air and Eastar Jet, as well as the industry’s top two players, Korean Air and Asiana Airlines, are struggling to survive through unpaid leave and wage reductions. The crisis these companies face is also reflected in their credit ratings. Korea Ratings is currently reviewing a downgrade of Korean Air’s credit rating.

The automobile industry is also experiencing a spread of restructuring atmosphere not only among small and medium-sized enterprises but also large corporations, as factory operating rates have sharply declined due to COVID-19. Mando, the second-largest auto parts manufacturer, has begun workforce restructuring, and finished car manufacturers such as Renault Samsung Motors and Korea GM have shifted to a continuous restructuring system.

As companies fail to operate factories properly, some are running out of operating funds, raising concerns that this could lead to bankruptcies in a few months. Eunmi Jeong, head of the Growth Engine Industry Research Division at the Korea Institute for Industrial Economics & Trade, said, "Currently, many companies cannot properly operate their factories, and this is true even for large corporations. The wave of corporate bankruptcies due to the complex crisis is expected to intensify starting in May, three months from now."

With a global economic recession anticipated, there are forecasts that even the leading companies in Korea’s key industries will struggle to survive. Accordingly, companies are appealing for the government to prepare realistic support measures. The Korea Chamber of Commerce and Industry has requested tax reductions for companies, restraint in corporate investigations by the Fair Trade Commission, and postponement of schedules related to the emissions trading system.