An Asiana Airlines A350 aircraft / Courtesy of Asiana Airlines

By Kim Hyun-bin

Asiana Airlines' financial structure continues to deteriorate as its debts have soared due largely to foreign exchange losses as a result of the won's falling value against the dollar, according to industry officials, Tuesday. In the first half of this year, Asiana's debt soared to 13.39 trillion won, up by 835 billion won ($638 million) from a year earlier.

The continuous rise in debt is becoming a burden on Korean Air, which aims to complete the acquisition of Asiana this year, they said.

According to the Financial Supervisory Service, as of the end of the first half of this year, Asiana Airlines' consolidated debt ratio stood at 6,544 percent. The debt ratio, which stood at 2411 percent at the end of last year, rose by 4133.9 percentage points in half a year. This rise is because its total equity decreased by about 60 percent, from 521 billion won to 204.7 billion won, while its total debt increased by 835 billion won in the first half.

This situation comes despite the company increasing its operating profit in the first half of this year by 283 billion won, turning a profit due to a sharp improvement in its cargo business performance.

"Although international passenger demand is gradually increasing, there are concerns about the current resurgence of COVID-19, and the cost burden is inevitably high due to the influence of continuously high interest rates, high exchange rates and high oil prices," an industry official familiar with the matter said.

Foreign currency exchange losses, which are classified as non-operating expenses, amounted to 416.3 billion won in the first half, which is more than double that of the first half of last year, 198.3 billion won.

Foreign currency for aircraft lease costs reached 4.86 trillion won at the end of June. As the exchange rate has risen sharply in recent months, the company's burden has surged, as interest and lease payments on aircraft loans must be made in U.S. dollars.

Asiana's financial structure is also putting a significant burden on Korean Air, which is seeking to acquire the company this year. Korean Air obtained conditional merger approval from the Fair Trade Commission in February to acquire Asiana Airlines. Currently, the merger is being reviewed by the competition authorities of the U.S. and the European Union (EU).

"Considering Asiana's high debt ratio and maturity of bonds, it will be virtually impossible to survive without an M&A with Korean Air," an airline industry official said.