Government Banks Step in to Support Korean Air

South Korea’s two state-owned banks, the Korea Development Bank (KDB) and the Export-Import Bank of Korea (Exim Bank), will reportedly give up to 1.2 trillion won ($971 million) in liquidity to Korean Air Lines to help the company stay afloat during the Covid-19 pandemic.

KDB and Exim Bank will provide Korean Air with 200 billion won in operation funds, purchase 700 billion won worth of asset-backed securities (ABSs) and buy 300 billion won in perpetual bonds convertible into stocks. The latter will give lenders a 10.8 percent stake in the company if they convert the perpetual bonds with no maturity date into Korean Air stocks.

According to reports, the two banks made the decision as the national flag carrier agreed to take measures to improve its financial status through sales of assets, job guarantees for employees and dividend restrictions.

Korean Air’s parent company, Hanjin Group, is reportedly considering selling core assets of the carrier in self-rescue efforts. The business divisions that may go up for sale include the airline’s in-flight meal service, mileage program and maintenance operations.

Currently, 90 percent of Korean Air ’s aircraft are parked due to the coronavirus pandemic. The airline has suspended the operation of most of its international routes (94 percent of its passenger business) due to entry restrictions of countries.