Korean Air Lines Co., South Korea’s largest full-service carrier, is up against major headwind because of nonoperational troubles and liquidity woes from higher borrowing costs.

According to a source from Korean Air’s board of directors, the company remains alert of another crisis after concerns over financial shortages caused by its funding for its sister company Hanjin Shipping Co. that went under bankruptcy court were eased.

The first risk would be invited by the U.S. Federal Reserve’s anticipated hike in interest rates scheduled on December 14. Among local carriers, the nation’s largest flagship carrier has the biggest debts amounting to 14.72 trillion won ($12.6 billion), of which dollar-denominated borrowing accounts for 62.5 percent. The U.S. rate hikes and the stronger dollar would result in snowballing debts. According to a stress test done by the company, 1 percent increase in the U.S. interest rate would add 97 billion won in borrowing cost, and a 10 won drop against the greenback would cause 92 billion won foreign-exchange losses. Expectations are growing that the Fed would raise interest rates this month.

To make matters worse, its pilots could go on a strike on December 20 after several failed attempts to reach an agreement between the pilot union and the management over wages. The pilot union demanded a 37 percent pay raise while the management suggested 1.9 percent increase.

The possible strike would deal a harsh blow to the air carrier as it would be able to operate just 80 percent of international flights and 50 percent of domestic during this year-end peak season. But it is difficult for the management to accept the demand by the pilots as it would cost them 130 billion won, 11 percent of its estimated operating profit for this year.

It is getting harder for the flag carrier to raise funds after Korea Ratings downgraded its credit rating from BBB+ to BBB on Tuesday. It is in desperate need of raising funds due to its high debt-to-asset ratio of 910 percent in the third quarter, slightly down from above 1000 percent in the second quarter. It has been seeking to issue $300 million worth perpetual bond but shunned by investors. It hopes its good performance in the third quarter could help it place the bond later.

Its bottom line would also be hit by the Chinese authority’s measure to cut Chinese tourists visiting Korea by 20 percent. The carrier’s sales made from China routes account for 15 percent of its total sales.

On Friday, shares of Korean Air Lines ended at 29,500 won, up 0.7 percent, or 200 won, from previous session.

By Kim Jung-hwan

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]