Korean Air B737-900ER. /Courtesy of Korean Air

This article was published on Jan. 8, 2025, at 3:37 p.m. on CHOSUNBIZ MoneyMove site.

Korean Air, which completed the acquisition of Asiana Airlines after four years, is set to issue its first corporate bonds of the year. Recently, there have been concerns about airline performance due to the Jeju Air incident in Muan, but industry experts primarily expect that Korean Air will successfully carry out the bond issuance.

According to investment bank (IB) industry sources on the 8th, Korean Air is pursuing a corporate bond issuance totaling 150 billion won, set for three-year and five-year terms. The company will conduct a demand forecast on the 20th and plans to issue the bonds on the 27th. Depending on the results of the demand forecast, it may be possible to raise as much as 300 billion won.

Korean Air's credit rating stands at 'A-', which is five levels below the highest rating of 'AA+' typically assigned to private companies. For the three-year bonds, Korean Air has proposed rates ranging from -30 to +30 basis points (bp) compared to the average rates from independent private bond rating agencies, while for the five-year bonds, rates range from -20 to +20 bp.

The leading underwriters include NH Investment & Securities, KB Securities, Korea Investment & Securities, Kiwoom Securities, Samsung Securities, and DB Financial Investment. The underwriting group comprises KDB Industrial Bank, Hanwha Investment & Securities, Hana Securities, Kyobo Securities, and Eugene Securities.

An IB industry official noted, 'The impact of the Jeju Air incident in Muan will be negligible, and even if there is any effect, it is likely that Korean Air, being a full-service carrier (FSC), will actually benefit from it, given that it is the largest airline in the country and the likelihood of bankruptcy is extremely low, making the bond issuance successful.'

Typically, airlines have high demand to issue bonds to finance the acquisition of new aircraft and cover leasing expenses. Korean Air decided to purchase 26 Airbus A321neo passenger planes for 5.358 trillion won at the end of last year and entered into a contract to acquire 33 A350 aircraft for 18 trillion won in March of the same year. The need to pay special bonuses to employees due to the acquisition of Asiana Airlines seems to have also affected their plans.

A representative from Korean Air responded, 'It's difficult to disclose specific details yet as we have not yet announced the securities registration statement.'

Meanwhile, Korean Air raised 1 trillion won in the public bond market last year. Thanks to a rapid improvement in performance, it successfully raised funds in the trillion won range with a credit rating of 'A-'. After recording an operating profit of 238.3 billion won in 2020, amid the COVID-19 pandemic, Korean Air earned 1.587 trillion won in 2023. Securities firms estimate that Korean Air will achieve around 1.989 trillion won in operating profit this year as well.

On the other hand, Korean Air completed the acquisition of a 63.9% stake in Asiana Airlines at the end of last year. This marks the conclusion four years and one month after the first announcement in November 2020. Korean Air plans to operate Asiana Airlines as a subsidiary for about two years before fully integrating it.

The consolidation results are expected to be reflected starting this year. Yang Ji-hwan, a researcher at Daishin Securities, explained, 'We can expect a heightened market dominance and economies of scale in the air freight sector due to the acquisition of Asiana Airlines.'

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