The Ministry of Land, Infrastructure and Transport has begun inspections of the startup low-cost airline Aero K. This comes amid concerns that Aero K has been in a state of complete capital erosion for several years, with liabilities exceeding assets, which could lead to risks for passenger safety and damages. If Aero K fails to improve its financial soundness rapidly, it could face revocation of its air transport business license in the worst-case scenario.
According to the aviation industry and the government on the 25th, the Ministry of Land, Infrastructure and Transport recently conducted a safety inspection of Aero K. Aero K has been unable to escape its complete capital erosion state for four years, and with worsening financial soundness, there could be issues maintaining aircraft safety, prompting the Ministry to conduct the inspections. The Ministry plans to soon look into the consumer protection institutional sector of Aero K.
The Ministry of Land, Infrastructure and Transport's increased oversight of Aero K comes two years after it issued a financial restructuring order to Aero K in May 2023, as the financial structure has not improved. According to the Aviation Business Act, the Minister can issue a financial restructuring order to airlines that have more than half of their capital eroded for over a year or are in a state of complete capital erosion. However, there is no specific deadline for when the airline must improve its financial structure. Nevertheless, the longer this period lasts, the more safety issues could arise for passengers.
According to Aero K's audit report, until 2019, the company had assets of 33.4 billion won and liabilities of 1.1 billion won, resulting in a positive total capital. However, in 2021, assets shrank to 14.4 billion won while liabilities increased to 25.4 billion won, leading to a state of complete capital erosion. Last year, assets rose to 132.8 billion won, but liabilities also grew to 213.4 billion won, further deepening the state of complete capital erosion. Aero K did not submit its 2020 audit report to the electronic disclosure system, raising concerns that its financial soundness may have plummeted since 2020.
Founded in 2015, Aero K received its air transport business license in 2019 along with Fly Gangwon and Air Premia. Aero K established its base at Cheongju Airport but initially failed to obtain a license due to capacity constraints at Cheongju International Airport in 2017. After reapplying, it succeeded in acquiring the license, thanks to its strategy to share demand with the saturated Incheon International Airport and Gimpo Airport.
Even after obtaining the license, it was not easy to actually operate flights. To operate an aircraft, it is necessary to obtain an Air Operator Certificate (AOC), and unlike Fly Gangwon, which received its AOC in six months, Aero K obtained its AOC 14 months later in December 2020. This was during the COVID-19 pandemic when the aviation industry was experiencing its worst conditions. Although recent trends show an increase in passengers at Cheongju Airport, where Aero K is based, it faces many restrictions, such as sharing runways with the military, making aggressive operations challenging.
Industry experts believe that if Aero K does not improve its financial soundness quickly, it could face cancellation of its air transport business license in the worst-case scenario. The Ministry of Land, Infrastructure and Transport stated that the decision to revoke the air transport business license must be strictly determined by law, so for the time being, it will strengthen the oversight of Aero K and monitor the situation.