Jeju Air (7C, Jeju) has announced plans to cut the par value of its common stock, to KRW1,000 won (USD0.87) from KRW5,000 (USD4.35) per share, pending shareholder approval at an extraordinary general meeting set for August 13.

The board of directors’ plans for the uncompensated five-to-one capital reduction, along with a paid-in capital increase of about KRW200 billion (USD174 million), had already been widely expected given the low-cost carrier’s precarious position as the impact of the pandemic on travel restrictions and demand continues, local media reported.

Jeju Air currently has about 38.5 million shares listed, so its capital would be cut from KRW192.4 billion (USD167 million) to KRW38.4 billion (USD33 million) once the measure is completed. It said that the difference between these two sums, KRW154 billion (USD134 million), would be used to compensate for losses and improve the company’s financial structure.

Jeju Air’s owner, the South Korean household and personal care product maker Aekyung Group, is expected to take part in the recapitalisation.

While the overall procedure should ease short-term uncertainties concerning liquidity, worries persist about the airline’s cash flow as Covid-19 variants spread. Jeju Air’s debt level has surged from 483% to 705% over the last year, with short-term debt repayments (due within a year) reaching KRW176.1 billion (USD153 million), the Maeil Business Newspaper reported.