Korean air carriers in fierce price and expansion competition would have to watch themselves as they face tougher guidelines on financial integrity.
The Ministry of Land, Infrastructure and Transport from this year would impose tougher financial guidelines, cancelling business license for airliners whose deficit net worth exceed 50 percent for more than three years from widening operating losses. A company with liabilities overwhelming equity capital 50 percent or more goes on a watch list and is delisted from the stock market when deficit completely erodes equity capital.
The detailed guidelines follow a government bill paving the way to kick out financially-weak airliner that passed the National Assembly in October.
“A financially weak airliner won’t be able to invest in maintenance upgrade and can jeopardize public safety,” a ministry official said.
According to audited financial statements, three out of seven domestic air carriers including two full-service liners and five low-cost carriers showed partially impaired capital.
Full-service carrier Asiana Airlines Inc. registered a negative net worth ratio of 13.1 percent. Budget carriers Tway Air Co. and Eastar Jet Co. completely ran out of equity worth as their deficit net worth ratio reached 106 percent and 157 percent, respectively.
The transport ministry will likely make the first year a transition period and start applying the tough regulation from next year.
By Kim Jung-hwan and Kim Gyu-sik
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