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Korean Air credit outlook raised, passenger traffic set to return

The acquisition of debt-ridden Asiana could weaken Korean Air’s financial strength and debt rating, analysts say

By Sep 21, 2021 (Gmt+09:00)

Korean Air's Boeing 787-9
Korean Air's Boeing 787-9

The credit rating outlook for Korean Air Lines Co. (KAL) and its parent Hanjin KAL Corp. has been upgraded amid expectations that passenger flights will return to pre-pandemic levels near the end of 2023 at the earliest.

Korea Investors Service Inc., an affiliate of Moody’s Investors Service, recently raised its credit outlook for the two companies to stable from negative, although it maintained ratings for Korean Air and Hanjin KAL at BBB+ and BBB, respectively – close to non-investment grades.

Analysts say the two companies’ credit ratings will also be upgraded once the struggling aviation industry returns to the level seen before the COVID-19 outbreak in 2019.

Up until last year, the International Air Transport Association (IATA) predicted that global travel would return to normal in 2024 at the earliest. However, such forecasts are changing.

A Boeing vice president recently said he expects international passenger traffic to return to the pre-2019 level around the end of 2023.

Korea Investors Service, the rating firm, also said it expects Korean Air’s business to be normalized in late 2023 or early 2024.

Korean Air officials remove seats in an airliner to enable cargo floor loading.
Korean Air officials remove seats in an airliner to enable cargo floor loading.


Hit hard by an industry downturn caused by the pandemic, Korean Air has converted many of its passenger planes into cargo planes as demand for the transport of medical and other emergency goods increased rapidly.

Korean Air’s cargo traffic sales in the first half of this year reached 2.9 trillion won ($2.5 billion), up 53% from a year ago.

The company posted 321.4 billion won in first-half operating profit with a profit margin of 8.7%.

According to Korea Investors Service, the Korean flag carrier’s operating profit in the first eight months of the year was estimated at more than 500 billion won.

Korean Air’s self-rescue efforts have also paid off, contributing to the outlook upgrade.

Company executives, employees and the labor union have made sacrifices as nearly 10,000 employees, accounting for 70% of the total staff, took a voluntary leave of absence for months. Executives also turned in up to 50% of their pay. Such efforts helped cut Korean Air’s operating costs by 40% in 2020.

In March this year, the company successfully raised 3.3 trillion won in a rights offering, following a capital increase of over 2 trillion won last year through a rights offer and asset sales.

Industry officials said a recovery in its passenger flight operations is key to an upgrade to its credit ratings.

Despite its handsome growth in cargo operations, Korean Air’s 2020 sales revenue halved from a 12 trillion won-13 trillion won range in previous years.

Market analysts expect Korean Air’s earnings to improve from the third quarter.

Hanjin Group Chairman and Korean Air Lines CEO Cho Won-tae
Hanjin Group Chairman and Korean Air Lines CEO Cho Won-tae


According to KB Securities, the airline’s third-quarter operating profit is projected at 347.4 billion won, more than double the current market consensus of 143.2 billion won.

“The number of Korean Air’s long-haul flight passengers is increasing, which is a good sign for the company’s earnings in coming quarters,” said Korea Investment & Securities analyst Choi Go-woon.

Korea Investors Service said Korean Air’s acquisition of debt-ridden Asiana Airlines Inc. could weaken its financial strength, a negative factor for its ratings.

“We will closely watch its debt status once the acquisition is completed,” said a Korea Investors Service official said.

Hanjin KAL and state-run Korea Development Bank, the main creditor of both airlines, announced in November of last year that Korean Air will acquire a 63.9% stake in debt-ridden Asiana in a 1.8 trillion won ($1.6 billion) deal.

Once completed, the merged entity will emerge as the world’s seventh-largest airline.

Write to Hyun-Il Lee and Eui-Myung Park at

In-Soo Nam edited this article.
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