Korean Airlines Grounds 70% of Fleet
Korean Airlines is on the front-line of the area of the world experience some of the greatest negative affects due to Covid-19 outbreak. Korean Air last week expressed its struggles as a passenger airline which operates in a country which is banned for entry by a wide array of countries.
This is the greatest economic crisis that the airline has faced as a whole resulting in the airline loosing over 80% of its capacity. According to a report presented by Woo Kee-Hong, Korean Air’s President, “We can easily imagine the severity of the crisis we are facing in comparison. And what is more daunting is that the situation can get worse at any time and we cannot even predict how long it will last.”
The airline has currently grounded roughly 70% of its fleet of 145 passenger aircraft. This includes their 10 Airbus A-380, an aircraft which has recently taken on negative publicity for its concerns regarding the sanitation on-board the double-deck wide body aircraft.
As the damage continues to linger for Korean Airlines the organization is desperately looking for a silver lining and is working to maximize cash-flow in a time of despair.
Using their larger passenger aircraft for cargo operations allows for alternative methods of generating cash flow.
Credit Based Airlines
With much of the airlines operating on credit based systems it can become difficult to run operations when the rich flow of cash begins to slow down. When profits tighten companies can look to scale down and lay off individuals and close store to keep certain aspects of the business operations. The issue with scaling down is that as more individuals are laid off less spending is done meaning that less income is generated by the business.
When businesses need to continue operations they look to potentially gain a line of credit or borrow money. The issues that we are seeing is that some organization are already too heavily leveraged to where when a crisis happens and cash flow starts to be affected then the debts can not be paid on time.
When debts are not paid on time then service can no longer be provided on credit which as a result then can affect operations if there is not cash on hand available.
If operations are not able to continue then we can potentially see management look to liquidate some assets or seize operations to prevent from further capitol losses. This is where we see airlines such as Thomas Cook and Flybe are forced to shutdown due to not being able to pay for certain debts for long periods of time which then as a failure of being able to maintain cash flow results in the organization being shut down as a means of selling assets to payback debtors.
Patience is Key
So much of the market is currently due to massive global panic. As the world is filled with uncertainty many are lost with what the next day with bring. The reality of it is that nobody knows what tomorrow will bring. With the current status of how events are developing in the world it is difficult to say what will occur in a few hours from now.
The importance is that we are developing a strong mindset during this time of weakening confidence. It is important that we have patience and allow for information and data to be processed. The internet increases the speed of information exponentially. This can be something that is extremely beneficial but also can potentially be harmful for the process.
There are certainly going to be some adjustments in the aerospace industry that we are all going to need to adapt to. This event is bringing changes to not just a single country but the whole world. Understanding that we are living in a specific moment in time is extremely vital to understanding the opportunity that is ahead.
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After the great depression followed some of the greatest financial success in America. After the “Dot-Com Boom many investors and companies made billions in the technology sector. After the Real Estate Crash many individuals rose to riches from purchasing undervalued assets. We are now currently experiencing one of the most sudden and volatile drops the market has ever experienced.
The potential opportunity for this to be one of the greatest moments in history for the generation of wealth is an idea worth considering. If after every major depression or recession there was incredible economic growth then that would mean that after this downfall is complete then we can proceed to experience time of incredible prosperity and growth.
Although It would be great to assume the world works perfectly we cannot assume that the market will correct itself by next week. This process may take weeks or even months for the value of companies to regain strength. Having patience is key to protecting our capitol by not rushing into uncharted waters.
As a disclaimer all trade ideas are for education purposes and not meant to be used as financial advise. All investing involve risks, including loss of principal. Past performances do not guarantee future results or success. Stock and Forex markets are volatile and can decline significantly in response to adverse regulatory, market, economic development. Asset allocation and diversification do not eliminate risk. All Content is used for illustrative purposes and for educational use only.