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Photo courtesy of Yonhap News |
[Alpha Biz= Kim Jisun] Korea’s aviation sector is among the industries suffering most from the soaring U.S. dollar, as key expenses—including aircraft lease payments, fuel costs, and maintenance—are largely settled in dollars. Steelmakers, which import essential raw materials such as iron ore and coking coal in dollars, are also facing mounting pressure.
According to industry sources on the 23rd, Korean Air recorded $4.8 billion (approx. KRW 7 trillion) in net foreign currency liabilities as of the third quarter. Every KRW 10 increase in the won–dollar exchange rate results in an estimated KRW 48 billion loss in foreign exchange valuation. Most of the airline’s foreign debt stems from aircraft procurement-related financing such as leases and purchases.
To mitigate volatility, Korean Air uses derivatives such as currency and interest rate swaps to convert dollar-denominated debt into fixed-rate won or yen obligations.
Asiana Airlines sees its pre-tax profit fall by approximately KRW 458.8 billion when the exchange rate rises 10%. About 90% of its foreign debt is tied to aircraft leases. Expecting the strong dollar to persist, Asiana is reportedly planning next year’s budget assuming KRW 1,450 per dollar.
Low-cost carriers—whose fleets depend more heavily on leased aircraft—are even more vulnerable to currency fluctuations. Jin Air estimates KRW 31.1 billion in losses for every 10% rise in the exchange rate, while Jeju Air expects KRW 24.9 billion in losses at a 5% increase. Fuel and maintenance costs, also largely dollar-based, amplify the burden; fuel alone typically accounts for about 30% of operating expenses for airlines.
The steel industry faces similar challenges. Because most raw materials are imported in dollars, a weaker won directly pushes up production costs. With global steel demand slowing, steelmakers have limited room to raise prices, heightening concerns that profitability will deteriorate.
Refiners are also exposed. Korea imports all of its crude oil—more than 1 billion barrels a year—in dollars, meaning a stronger dollar immediately increases procurement costs. SK Innovation noted in its third-quarter report that a 10% rise in the won–dollar rate would reduce its pre-tax profit by approximately KRW 154.4 billion.
Alphabiz Reporter Kim Jisun(stockmk2020@alphabiz.co.kr)
