[Asia Exclusive] Kim Sugon, Executive Vice President of Korea Aviation Association, "Tax Regulations on Air Routes Should Be Relaxed to the Level of Competing Countries"

US, EU and Other Major Foreign Countries Join TCA
Duty-Free Trade of Aircraft Maintenance Parts
Reduced Exemption Rate Expected for 'Non-Member' Korea
"Extension Needed for Aircraft Parts Exemption Period"

Urgent Need to Improve Draft Fund Support Targets
Must Revive Recovery Momentum Using Travel Bubble

Kim Soo-gon, Executive Vice President of the Korea Air Transport Association, is being interviewed by Asia Economy on the 18th at the Gimpo Airport terminal in Gangseo-gu, Seoul. Vice President Kim stated that in order to compete fairly with foreign airlines, tax regulations should be eased to the same level as major competing countries. Photo by Kim Hyun-min kimhyun81@

[Dialogue = Eunjeong Lee, Head of Industry Department; Summary = Dongwoo Lee, Reporter] "In the post-COVID era, for domestic airlines to compete fairly with foreign airlines, tax regulations must be eased to the same level as major competing countries such as the United States, Japan, and Europe."

Kim Sugon, Executive Vice President of the Korea Civil Aviation Association (KCA), cited the relaxation of aircraft tax regulations as a key focus during his tenure in an interview with Asia Economy on the 18th at the Gimpo Airport terminal in Gangseo-gu, Seoul. He believes that fully exempting tariffs on aircraft parts and local taxes on aircraft regardless of deadlines is the way to enhance the global competitiveness of Korean companies.

Kim explained, "When purchasing aircraft or importing parts, not only the U.S. but also China exempt related taxes, but Korea is moving in the opposite direction. For large airlines, the property tax exemption on aircraft has been eliminated, and the tariff exemption rate on parts will be gradually reduced starting next year."

Tax Regulations Undermining Global Competitiveness: A 'Tilted Playing Field'

According to the Customs Act, items specified in the Trade in Civil Aircraft Agreement (TCA) were 100% exempted from 2019 to 2021, but the exemption rate will be gradually reduced from next year and completely abolished from 2026.

Major overseas countries such as the U.S., European Union, Japan, and Singapore trade aircraft maintenance parts duty-free through agreements like the TCA, but Korea, not a TCA member, is scheduled to reduce exemption rates, which may weaken global competitiveness in fares and services in the future.

Business aircraft also receive a 60% acquisition tax exemption (2019?2021) and a 50% property tax exemption, but large airlines are excluded from the property tax exemption. Low-cost carriers (LCCs) can only benefit for up to five years after aircraft introduction.

Kim stated, "Korea is proposing to extend the 100% exemption period for aircraft parts and to join the TCA to establish a permanent duty-free foundation. Since major competitors do not impose acquisition or property taxes on business aircraft, if Korea alone imposes these taxes, there is a high risk of exposure to an unfair competitive environment."

Rational Improvement Needed for Support Targets of the Industrial Stabilization Fund

Kim emphasized that the most pressing issues felt by the aviation industry and aviation workers are the extension of paid employment retention subsidies and long-term low-interest financial support for airlines.

He explained that the eligibility criteria for the Industrial Stabilization Fund (ISF) support should be adjusted from total borrowings of 500 billion KRW to 300 billion KRW to provide effective support so that newly established LCCs can fully benefit.

With the government's paid leave employment retention subsidy ending at the end of next month, the aviation industry is preparing to switch to unpaid leave. For example, Jeju Air plans to obtain consent forms for leave and suspension from employees by this month, and Air Busan has confirmed a switch to unpaid leave for four months from early October to early February next year to reduce labor costs.

Kim said, "Currently, large airlines like Korean Air and Asiana Airlines are profitable due to cargo volumes, but LCCs are in a very difficult situation. There are many requests on the ground for policy fund injections such as the ISF for LCCs, so I feel the need to make practical proposals to the government."

Hope for Demand Recovery in the Second Half of the Year... Active Use of Travel Bubbles Needed

Although difficulties in passenger demand recovery are increasing due to the spread of the Delta variant, Kim repeatedly emphasized that it is still too early to lose hope.

Kim stated, "It is true that the aviation industry is struggling now, but I believe travel bubbles should be implemented more actively. Travel bubbles, which can be managed and controlled under travelers' compliance with quarantine rules, can harmoniously promote aviation demand recovery and quarantine."

He explained that thorough quarantine measures by airlines and travel agencies, and the appointment of quarantine managers during group tours, can lead to a change in travelers' perceptions, resulting in demand recovery.

He also pointed out that airport operators creating separate quarantine zones from aircraft landing and takeoff to arrival halls is an area that should be worked on to ensure the safety of travel bubble travelers.

Kim argued, "Since demand recovery is limited with group tourists alone, once the spread trend eases, the scope of travel bubbles should be expanded as quickly as possible to include business and individual travelers who have completed vaccination." He also proposed the introduction of internationally accepted digital immunity certificates to prove vaccination status upon entry and exit to revitalize overseas travel.

Kim Sugon, Executive Vice President of the Korea Aviation Association. / Photo by Hyunmin Kim kimhyun81@

Intense Global Competition for Eco-Friendliness... Government Support Crucial for Reducing Carbon Dioxide

Kim predicted that international aviation greenhouse gas regulations centered on the United Nations (UN) International Civil Aviation Organization will have a significant impact on future aviation industry competition.

The greenhouse gas regulation is in a voluntary operational phase from this year until 2026, with Korea participating. It is scheduled to be fully implemented from 2027, requiring the purchase and offsetting of emission allowances for any carbon emissions exceeding 2019 levels.

Kim said, "When greenhouse gas regulations become full-scale, the burden on the industry will be considerable. Active government interest and support are urgently needed."

He also stressed the importance of maintaining existing airport slots in major airports to prepare for aviation demand recovery after COVID-19. Kim explained, "Recently in Europe, about 50% of flights are operated to maintain slots. We should cooperate with the government accordingly to ensure our airlines do not suffer damage."

Industry Restructuring After Domestic Airline Integration... Expectation of Economies of Scale

The domestic aviation industry is anticipating a major transformation that will mark a significant milestone in Korea's 70-year history of civil aviation, with the upcoming integration of Korean Air and Asiana Airlines and the launch of a consolidated LCC subsidiary.

Kim said, "As analyzed by Korean Air, the integration with Asiana Airlines is expected to improve resource efficiency in hub airports, networks, fleets, and personnel, securing economies of scale and generating synergies of 300 billion to 400 billion KRW annually. From a revenue perspective, effects such as route duplication optimization, strengthened connections, and increased joint venture (JV) effects are expected."

Regarding costs, he noted that efficient utilization of facilities, personnel, aircraft, terminals, and sales organizations through integration will enable the positive functions of economies of scale, allowing Korea's aviation industry to take a new leap forward and enhance its international status.

Finally, Kim emphasized, "As the COVID-19 crisis prolongs, international air transport, a major source of income, has collapsed, causing operational difficulties for all airlines and related companies. The Aviation Association will continue to make great efforts to minimize COVID-19 damage by proposing various supports to the government for the aviation industry facing survival crises and aviation workers with unstable employment."