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Virus-stricken air carriers tighten belts with reconstructing, downsizing

April 2, 2020 - 16:51 By Kim Da-sol
An employee prepares meals at Korean Air’s in-flight meal manufacturing center inside Incheon Airport on Thursday. (Yonhap)

Korean air carriers that have been hit hard by the COVID-19 pandemic are undergoing restructuring to downsize the workforce amid continued losses from reduced passengers and suspensions of international routes, according to industry sources on Thursday.

Eastar Jet, a local budget carrier that halted all services from March 23 for a month, said Thursday it will send 45 percent, or 750 employees, of its total workforce home from April 24. 

The air carrier said it will first receive applications from those who wish to apply for early retirement from Friday. If the planned 45 percent do not apply, the company will have to conduct massive layoffs, it said. 

In late March, Eastar Jet notified some 80 co-pilots with one to two years of experience of contract termination, due to severe capital shortages. In February, Eastar Jet employees received only 40 percent of their monthly salaries, while the March salary has not been paid yet. 

The company said that following the restructuring it will return an additional eight leased planes from the total 23 planes that it owns. Two have already been returned. 

To support ailing air carriers, the government-run Korea Development Bank has decided to offer 200 billion won ($162 million) to Jeju Air, another low-cost carrier that acquired Eastar Jet earlier last month for 54 billion won. 

But industry insiders said as the acquisition is still in the process, it is not feasible for Jeju Air to directly fund the cash-strapped Eastar Jet.

Also, the country’s full-service carrier Korean Air held an emergency meeting with its labor union a day earlier. The management has reportedly delivered a proposal on giving six months of partially paid leave to all employees in a last resort as a company, after some 90 percent of Korean Air’s flight routes have been suspended. 

Korean Air officials said discussions are still under way, while paid leave will take place as soon as the management and the labor union reach an agreement. 

In case of the paid leave, an employee would receive up to 70 percent of the monthly salary, as well as governmental subsidies for employment retention. 

Earlier, Korean Air initiated mandatory unpaid leave for 387 foreign pilots lasting three months from June 30. 

Meanwhile, Asiana Airlines, which signed a takeover deal with a midsized builder HDC Hyundai Development in December at 2.3 trillion won, has postponed the date of payment for the initial paid-in capital increase worth 1.4 trillion won. 

Previously, Asiana had set the payment day for its new shares to be issued on April 7. The airline said that the newly set date will be “agreed between by all parties concerned with the acquisition plan.”

Market experts have viewed that the deteriorating financial status of Asiana amid the COVID-19 outbreak may influence the planned acquisition plan. 

But HDC CEO Kwon Soon-ho reiterated that the company would “successfully complete the overall process to acquire Asiana Airlines” during a shareholders meeting on March 25.

But for mergers and acquisitions involving airlines, a new owner must receive approval from the countries that the air carrier flies to, which may take longer than expected for HDC in order for it to complete its acquisition plan by the end of this month, according to experts.

By Kim Da-sol (ddd@heraldcorp.com)