[Square] Finding Solutions for the Crisis in the Aviation Industry

Yoon Moon-gil, Professor, Department of Business Administration, Korea Aerospace University

The crisis in the aviation industry caused by the novel coronavirus infection (COVID-19) is something everyone empathizes with. Although hopeful news about vaccines and treatments to overcome COVID-19 is being reported, the uncertainty regarding the recovery of the aviation market remains very high. There is a shared sense of crisis that if this continues, the foundation of Korea's aviation industry could collapse, leading to mutual destruction.

Korea's aviation industry had already recognized the need for structural reform before the COVID-19 crisis. However, due to COVID-19, business-centered restructuring was postponed, and with the continued liquidity crisis of airlines caused by the slump in air travel demand, many difficulties have been experienced. Ultimately, the Korea Development Bank even resorted to a 3-for-1 equal capital reduction card despite opposition from minority shareholders to maintain the credit rating of Asiana Airlines. This was perceived as the creditors taking responsibility and making efforts for Asiana Airlines' recovery, raising hopes once again for a successful workout like the one five years ago.

Amid this, the acquisition of Asiana Airlines by Korean Air, led by the Korea Development Bank, was announced. The plan is to overcome the current crisis and transform into a global airline by expanding the scale of the national carriers. No one opposes this rationale. However, the feasibility of the announced plan is uncertain due to the unpredictability of the aviation market recovery after COVID-19.

Moreover, it is concerning that the restructuring of the aviation market is being carried out not based on market principles but led by a policy bank. There is a possibility that the government could directly intervene in the management of private companies by using the Korea Development Bank's investment, which implies a latent risk that management rights could be influenced at any time if the companies do not follow government policy directions. For this reason, restrictions are placed on the exercise of voting rights by the National Pension Service in its investee companies, but no information has been disclosed regarding restrictions on voting rights for this Korea Development Bank investment, which increases the risk of government interference in management.

Structural reform of the aviation industry should be conducted in a way that aligns with the national economy and public benefits. However, this restructuring appears to be focused on the safe recovery of creditors' loans. It is a typical financial market logic-based restructuring plan that considers only the scale and method of investment funds without designing alternatives for market dominance and competition restrictions resulting from the merger of the two national airlines, or the benefits to consumers, the public. If the recovery of air travel demand is delayed after COVID-19, there is a sufficient possibility that both merged airlines could face joint risks.

The need for restructuring the aviation industry is commonly recognized by the government, industry, and academia. However, the method should not be a means for debt recovery but should be aimed at enhancing the competitiveness of the aviation industry, improving consumer benefits, and contributing to the national economy. The government's role is not to intervene in corporate management but to assist in ensuring that restructuring is carried out according to market principles. Furthermore, it is time for the aviation policy department to take a more responsible and proactive role by gathering diverse wisdom to overcome the aviation industry's crisis early.