A Jeju Air jet / Courtesy of Jeju Air

By Kim Hyun-bin

Jeju Air's growing financial trouble is spreading to its parent firm Aekyung Group as it continues to bleed funds, according to industry officials Monday. AK Holdings, the holding company of Aekyung Group with a 51.06 percent stake, has been seeing its finances deteriorate as it continues to inject capital into Jeju Air, which has been devastated by increasing losses due to the COVID-19 pandemic.

The budget airline, which has been experiencing a liquidity crisis, decided to issue a paid-in capital increase worth 320 billion won ($237 million), with support from Aekyung Group and general shareholders. Since 2020 the group has made continuous paid-in capital increases adding up to nearly 700 billion won.

According to the Financial Supervisory Service, Monday, Jeju Air will proceed with a capital increase of 320 billion won in November. The company, which carried out a capital increase of 158.4 billion won in July 2020 and 206.6 billion won last October, will receive a total of 683 billion won from shareholders through November.

"The funds secured through the capital increase are planned to be used as facility funds, such as the introduction of next-generation aircraft," a Jeju Air official said.

A significant portion of airline finances are from foreign currency borrowing, which has been burdened in recent months due to soaring interest rates, causing a liquidity crisis for airlines as well as their parent companies.

Jeju Air CEO Kim E-bae

As competition between low-cost carriers (LCCs) intensified and was hit by the pandemic, the company recorded a cumulative operating loss of 685.8 billion won from 2019 to 2021. At the end of the first half of this year, its debt-to-equity ratio stood at 863.51 percent.

Current liabilities that must be repaid within one year and the insufficient liquidity amount to 247.2 billion won, forcing Jeju Air to conduct a capital increase of 320 billion won in order to repay the loans that are reaching maturity.

Aekyung Group Chairwoman Chang Young-shin

The situation for AK Holdings is getting worse as it continues to support Jeju Air.

If AK Holdings participates in this capital increase, it will need to invest 130.7 billion won. AK Holdings, which invested 68.8 billion won and 88.4 billion won in Jeju Air respectively in 2020 and last year, will spend a total of 287.9 ??billion won if it supports the airline again this time.

At the end of June, AK Holdings' cash equivalent stood at 779 million won. For AK Holdings to take part in the capital increase, it has no choice but to sell shares of its subsidiaries or increase its borrowings. AK Holdings owns stakes in subsidiaries such as Jeju Air (51.06 percent), Aekyung Chemical (62.85 percent), Aekyung Industrial (45.42 percent) and AK S&D (76.68 percent).

As Jeju Air's capital increase continues and stock prices fluctuate, the livelihoods of AK Holdings and general shareholders are getting worse. The stock price of Jeju Air soared to 27,000 won around midday on June 27 last year, but it currently stands at 14,850 won after a 10.26 percent drop, Monday, after the company announced its plans for a capital increase.

Aekyung Group officials were not available for comment.