Overview of Korean Air’s Business Recovery
The global pandemic hit the airline industry hard, and Korean Air was no exception. The company faced a significant downturn in its financial conditions since early 2020, with its financing options such as ‘Asset-backed securities (ABS)’ or ‘new capital securities (permanent bonds)’ no longer viable. However, Korean Air has shown resilience and adaptability, implementing strategic measures to navigate through these challenging times.
The Impact of the Pandemic on Korean Air
The pandemic led to a reduction of flight routes, which increased the risk of triggering early redemption of existing issues. This situation, coupled with the spread of the virus, made it difficult for Korean Air to persuade foreign institutions to issue foreign currency bonds. The company’s performance was expected to deteriorate, and credit rating agencies put Korean Air on a negative review list.
Korean Air’s Strategic Response to the Crisis
In response to these challenges, Korean Air changed its procurement pattern. It capitalized on the rising stock market to raise funds for the acquisition of Asiana Airlines and refinancing. The company also received government fund support through a national bank for early repayment of perpetual bonds. Furthermore, Korean Air considered issuing ESG (Environmental, Social, and Governance) bonds for the first time as a domestic airline and selling assets it owns, such as land in Songhyeon-dong, Jongno-gu, Seoul[^1^].
Korean Air’s Return to the Capital Market
As business conditions improved, Korean Air began to regain its presence in the bond market. The company’s credit rating outlook changed to ‘positive’ again in April, and it collected a lump sum of money nearly four times the amount of the offering in the first public bond issuance forecast this year[^2^].
The Role of Samurai Bonds in Korean Air’s Financing Strategy
One of the key strategies in Korean Air’s return to the capital market was the issuance of samurai bonds (yen-denominated bonds). The issuance was supported by the continued inflow of yen assets amid the recovery of Japanese air demand and the recovery of the collateral value of aircraft[^3^].
Korean Air’s Presence in the Bond Market
Korean Air’s presence in the bond market is growing again. The company is currently reviewing the issuance of ABS. Despite the improvement in business conditions, Korean Air’s corporate bond rating is still not as high as BBB+, so investment is considered at the level of retail at securities companies[^2^].
Korean Air’s Performance and Credit Rating
The pandemic had a significant impact on Korean Air’s performance. However, with the recovery of the industry, there is more room for issuance decisions than before. The company is considering options with lower procurement costs[^2^].
The Impact of the Pandemic on Korean Air’s Performance
The pandemic led to a significant deterioration in Korean Air’s performance. Attempts to issue foreign currency bonds continued, but it was not easy to persuade foreign institutions immediately after the spread of the corona virus[^2^].
The Recovery of Korean Air’s Credit Rating
Despite the challenges, Korean Air’s credit rating outlook changed to ‘positive’ again in April. This change was a significant step towards the company’s recovery[^2^].
Korean Air’s Procurement Plans and Issuance Decisions
Korean Air has diversified its procurement plans, including stocks and bonds. With the recovery of the industry
, there is more room for issuance decisions than before. The company is considering options with lower procurement costs1.
Korean Air’s Acquisition of Asiana Airlines
In November 2020, during the COVID-19 pandemic, the South Korean Government officially announced that Korean Air will acquire Asiana Airlines. The merger between South Korea’s no.1 and no.2 airlines would see Korean Air become the biggest shareholder in indebted Asiana2. This strategic move is expected to strengthen Korean Air’s position in the market and contribute to its recovery.
Investment Insights
The recovery of Korean Air presents an interesting investment opportunity. The company’s strategic measures, including the issuance of samurai bonds and the acquisition of Asiana Airlines, indicate a strong potential for growth. However, it’s important to note that the company’s corporate bond rating is still not as high as BBB+, which means that investment is considered at the level of retail at securities companies1. Therefore, potential investors should carefully consider their investment decisions.
Conclusion
Korean Air’s journey through the pandemic and its subsequent recovery is a testament to the company’s resilience and strategic adaptability. Despite the challenges, the company has managed to navigate through the crisis and is now on a path to recovery. With its diversified procurement plans and strategic measures, Korean Air is set to regain its position in the capital market and continue its growth trajectory.
FAQs
- What is a samurai bond? A samurai bond is a yen-denominated bond issued in Tokyo by non-Japanese companies and is subject to Japanese regulations.
- What was the impact of the pandemic on Korean Air? The pandemic led to a significant downturn in Korean Air’s financial conditions, with a reduction of flight routes and difficulties in issuing foreign currency bonds.
- How did Korean Air respond to the crisis? Korean Air implemented strategic measures, including capitalizing on the rising stock market, receiving government fund support, and considering issuing ESG bonds.
- What is Korean Air’s current position in the bond market? As business conditions improved, Korean Air began to regain its presence in the bond market. The company’s credit rating outlook changed to ‘positive’ again in April.
- What is the significance of Korean Air’s acquisition of Asiana Airlines? The acquisition of Asiana Airlines is a strategic move that is expected to strengthen Korean Air’s position in the market and contribute to its recovery.