Oil Industry "Not Considering Debt Forgiveness for Unpaid Amounts of Eastar Jet"

Refining Industry Faces Q2 Losses... Refining Margin at Zero Dollar Level
Embarrassed by Partial Principal Forgiveness Request for Aviation Fuel Payments

[Asia Economy Reporter Hwang Yoon-joo] The oil refining industry has decided to respond firmly, stating that it cannot accept Eastar Jet's request for partial reduction of aviation fuel payments. This is because if the aviation fuel payments are reduced amid a record quarterly loss in the first quarter and continued losses in the second quarter, concerns about liquidity will inevitably increase.

According to the oil refining industry on the 14th, oil companies plan to convey their stance that they are "not considering" Eastar Jet's request for partial reduction of aviation fuel payments. The price of aviation fuel purchased by Eastar Jet in Korea last year (47.11 million gallons) amounted to 106.8 billion KRW, and about 19.2 billion KRW (8.46 million gallons) in the first quarter of this year.

Eastar Jet must reduce unpaid amounts by the 15th to finalize the merger and acquisition (M&A) contract with Jeju Air. This is also why Eastar Jet requested oil companies to reduce part of the aviation fuel payments.

Previously, Eastar Jet requested a deferment of aviation fuel payments due to management difficulties last year, and again asked for a delay in payment early this year due to the COVID-19 pandemic. Recently, as the impact of COVID-19 showed signs of prolonging, they also requested a waiver of delayed interest on aviation fuel payments, and the oil refining industry granted payment deferments accordingly.

In this situation, when Eastar Jet requested even a principal reduction of aviation fuel payments, the oil refining industry expressed refusal citing liquidity concerns.

According to securities information provider FnGuide, SK Innovation's operating loss in the second quarter of this year is expected to reach 421 billion KRW. GS Caltex and S-OIL are each projected to have losses of about 100 billion KRW. To make matters worse, oil companies must pay taxes that were deferred until the end of this month all at once. Previously, the government deferred payment of transportation, energy, and environmental taxes (National Tax Service) for April to the end of July to support the oil refining industry struggling due to COVID-19, and extended the petroleum import charges (Ministry of Trade, Industry and Energy) for April to June by three months each. The taxes payable by the four oil companies amount to approximately 1.44 trillion KRW.

An official from the oil refining industry said, "We have endured by granting payment deferrals requested by the aviation industry while we ourselves are facing difficulties due to COVID-19," adding, "It is practically difficult to reduce payments that we should receive while recording large-scale losses in the first half of the year," expressing frustration.