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Budget carriers raising funds to ride out 4th wave of pandemic

Aircraft owned by low-cost carriers are parked at Gimpo International Airport in Seoul in this July 2020 file photo. Yonhap

By Park Jae-hyuk

Domestic low-cost carriers are going all out to draw investments to cope with snowballing losses caused by the COVID-19 pandemic and to prevent the government from revoking their licenses due to capital impairment, their regulatory filings showed Monday.

T’way Air could avoid capital impairment after raising 80 billion won ($70 million) in April by selling 31.8 million newly issued stocks to W Value-up, a special purpose vehicle established by JKL Partners, a local private equity firm (PEF).

Air Premia, a new budget carrier that seeks to launch flights between Gimpo and Jeju, has relied on JC Partners, another domestic PEF that formed a consortium with logistics provider Korchina, to invest up to 65 billion won in the airline. The consortium has injected 37 billion won into Air Premia so far.

Jeju Air, Air Busan and Fly Gangwon are also trying to raise capital to avoid their total capital becoming less than the par value of their capital stocks.

Jeju Air decided to reduce its capital to 38.4 billion won from 192.4 billion won in August by cutting the par value of its stock to 1,000 won from 5,000 won. The budget carrier, based on Jeju Island, also seeks to raise an additional 200 billion won by issuing new stocks the same month.

Air Busan is pushing ahead with a plan to raise 250 billion won by issuing new stocks in October, although the budget carrier received 80 billion won during the first half of this year from its parent company, Asiana Airlines.

Fly Gangwon had tried in March to reduce its capital to 13.8 billion won from 41.4 billion won and to raise an additional 20 billion won by issuing new stocks. However, the carrier scrapped its initial plan after realizing it would not be enough to avoid capital impairment. Instead, Fly Gangwon decided in June to reduce its capital to 8.2 billion won and to raise an additional 25 billion won by issuing new stocks.

Jin Air is also expected to raise capital from its parent company, Hanjin KAL, or its sister company, Korean Air, by issuing new stocks, although the company said that nothing has been decided so far.

Securities analysts, however, are skeptical, pointing out that a resumption of outbound travel is necessary for domestic budget carriers to achieve turnarounds in earnings.

“I recommend investors to be careful about investing in low-cost carriers,” Daishin Securities analyst Yang Ji-hwan said. “Large-scale fundraising is inevitable for them, so there seems to be a dilution of shareholder value.”

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