CONTENTS
2
4
6
10
11
Profile
Financial Highlights
Message from the Chairman
Board of Directors
Corporate Governance
Excellence At Work
14
16
18
22
26
28
29
2007 at a Glance
Business at a Glance
Passenger Business
Cargo Business
Aerospace Business
Catering Business
Hotel & In-Flight Sales Business
Excellence In Action
32
33
34
35
36
40
42
Maintenance & Engineering
Safety
Fuel Management
SkyTeam Alliance
Social Contributions
Environmental Management
Human Resources
Financial Section
46
64
Management’s Discussion &
Analysis
Financial Statements
113
114
116
118
119
Organization Map
Executive Officers
Overseas Network
Domestic / China / Japan Network
Corporate Information
Flying High in
Excellence
2007 ANNUAL REPORT
Korean Air’s New Boeing
Freighter(B747-8)
A Passion for Excellence in Flight,
Our Total Commitment to the Future
Established as the nation’s flagship carrier in 1969, Korean Air has continuously expanded its operations
and focused on customer satisfaction. Today, with a fleet of 126 planes including the world’s most
advanced aircraft, Korean Air’s effective management systems and customer-oriented policies have
enabled the airline to achieve outstanding performances and meet the customers’ needs during the last
four decades.
As a world’s leading carrier in terms of quality and quantity, Korean Air is now faced with higher expectations and more opportunities to move forward. In 2008, Korean Air will fly to 115 cities on the world’s
six continents, truly defining us as a leading global airline in service networks. With the ultimate goal of
becoming a Respected Leader in the world airline industry, we have a clear mission of providing “Excellence in Flight,” a firm commitment to delivering value to our customers, shareholders and the communities we serve. The passion for innovation and creativity will continue to be an underlying core competency of Korean Air as its management and 17,000 dedicated employees strive to achieve Excellence in
Flight.
FINANCIAL HIGHLIGHTS
Operating Revenues
(In billions of KRW)
Total Assets
(In billions of KRW)
Operating Income
(In billions of KRW)
Net Income
(In billions of KRW)
KOREAN AIR ANNUAL REPORT 2007
004 · 005
Financial Highlights
In millions of USD*
(Years ended December 31)
In billions of KRW*
2007
2007
2006
2005
2004
2003
Operating revenues
9,392.4
8,812.0
8,077.9
Gross profit
2,155.9
2,022.7
1,773.4
7,584.2
7210.9
6,177.2
1,692.3
1,668.9
1,413.5
Selling, general & administrative expenses
1,477.1
1,385.8
678.8
636.8
1,276.0
1,259.8
1,284.9
1,102.1
497.4
432.5
384.0
311.4
OPERATING RESULTS
Operating income
Income before tax
98.4
92.3
487.9
253.0
723.0
(198.9)
Net income
11.4
10.7
383.0
200.4
519.5
(241.1)
Total assets
16,150.5
15,152.4
13,584.7
13,568.6
13,739.0
14,115.2
Total liabilities
11,451.4
10,743.7
9,209.3
9,539.7
9,927.9
10,758.9
4,699.1
4,408.7
4,375.4
4,028.9
3,811.1
3,356.3
0.2
9.1
5.1
5.8
Net loss
FINANCIAL CONDITION
Total shareholders’ equity
FINANCIAL RATIOS (%)
Return on average equity
Return on average assets
Debt-to-equity ratio
EBITDAR margin
Fixed charge coverage ratio (times)
PBR
0.1
2.8
1.5
3.7
Net loss
243.7
210.5
236.8
260.5
320.6
19.4
19.3
19.3
20.5
22.7
2.2
2.0
2.0
1.9
1.7
117.5
54.8
52.9
33.1
36.8
148
5,725
2,989
7,765
(3,607)
PER SHARE DATA
Earnings Per Share(In USD, KRW)
0.2
*Korean Won figures are translated, solely for the convenience of readers into U.S. dollars at KRW938.20 : USD1.00, the rates prevailings as of December 31, 2007
Operational Results
Revenue Passengers Carried
2007
2006
2005
2004
22,834,003
22,353,169
21,708,821
21,454,574
2003
21,546,086
Change (%)
2.2%
Available Seat-Kilometers ('000ASK)
76,181,620
71,894,436
68,658,976
64,651,689
59,073,776
6.0%
Revenue Passenger-Kilometers ('000RPK)
55,353,818
52,177,665
49,046,290
45,999,676
40,507,002
6.1%
Revenue Freight Tons Carried
Available Freight Ton-Kilometers ('000AFTK)
Revenue Freight Ton-Kilometers ('000FTK)
2,281,671
2,115,089
1,981,708
2,017,994
1,767,927
7.9%
12,992,069
11,661,645
10,830,838
11,014,965
9,794,140
11.4%
9,677,679
8,857,155
8,139,959
8,345,244
7,061,863
9.3%
MESSAGE FROM THE CHAIRMAN
KOREAN AIR ANNUAL REPORT 2007
With every challenge comes the opportunity for success, and
Korean Air faced each test with courage, dignity and talent.
Dear Shareholders,
Last year again was challenging to the global airline industry, and Korean Air was not immune to the effects.
But with every challenge comes the opportunity for success, and Korean Air faced each test with courage,
dignity and talent.
Despite the formidable environment, Korean Air grew revenues of KRW 8,812 billion and an operating
income of KRW 637 billion largely by strengthening our route networks in emerging markets such as China
and Southeast Asia, improving our global sales activities, focusing our emphasis on our premium classes,
and managing fluctuating exchange and interest rates.
The company launched passenger flights to new high growth destinations like Madrid, Melbourne, and
Chiang Mai, while further solidifying and expanding our cargo network by adding Moscow, Munich, and
Houston.
In addition, we created an affiliated budget carrier, Air Korea, to compete in the low cost airline market that
is blossoming throughout Asia. We launched operations for Grandstar, the cargo airline we jointly established with Sinotrans, China’s largest logistics company. This will allow us to tap into the energetic Chinese
market and reinforce our international competitiveness.
We have invested significantly to deliver Excellence in Flight, and continue to pursue improvements that will
add to our shareholders’ and brand equity. We are concentrating on flying the most advanced and environmentally-sensitive fleet, providing a memorable and rewarding in-flight experience and having the ability to
take anyone anywhere at any time. Internally, we are committed to our 10-10-10 strategy designed to
increase revenues, reduce costs without impacting quality, and improve productivity by 10 percent respectively.
All these efforts have helped make Korean Air the global leader it is today.
006 · 007
Every one of Korean Air’s management and employees is
dedicated to securing global leadership through stronger
competitiveness and substantial growth.
Last year, IATA ranked Korean Air Cargo as the world’s top commercial airline freight carrier for the third
consecutive year. Business Traveler readers voted Korean Air as being the Best Airline in Asia and having the
Best Transpacific Business Class service. For the third year in a row, Korean Air received the coveted Mercury
Award by the International Travel Catering for exceptional inflight catering. Our catering services also were
praised by PAX International, an important trade magazine, that chose Korean Air as Airline of the Year in
Asia.
And our SkyTeam Alliance, of which Korean Air is a founding member, was selected as the best airline
alliance by Business Traveler magazine’s readers, further reinforcing our position as a leading global airline
in our association with other leading global airlines.
This coming year will present challenges equal to and, perhaps, exceeding years’ past.
We expect fuel prices to continue to escalate, a jittery world financial market made more nervous by the US
subprime mortgage crisis, and a general slowdown in major market economies. Domestically, we have
obstacles as well, including a strong Korean Won that is weakening our export competitiveness, and a real
estate market mirroring those that are declining around the world. Despite these obstacles, we have planned
for and expect robust growth in outbound travel due to the new administration’s policy of economic
improvements. We also are optimistic about the upcoming Beijing Olympics, the proposed visa exemption
accord with the U.S., and the brisk economies of China and India that are expected to add opportunities.
Based on this cautious optimism, we set our 2008 target at KRW 9,490 billion in revenues and KRW 820 billion in operating income. This is tangible evidence of the company’s commitment to producing strong profits under tough conditions.
To maintain substantial growth and reinforce our competitive edge, we will continue to strengthen our focus
on profitable routes and enterprises, products that customers demand and view as valuable, and a corporate
KOREAN AIR ANNUAL REPORT 2007
culture that fosters innovation and foresight. In addition, we are investing our time and efforts to substantially promote and protect our environment and have been publishing an annual sustainability report that
communicates our efforts worldwide.
Our emphasis on IT has resulted in 100% domestic and about 90% worldwide e-ticketing, saving time and
trees over paper tickets. This coincides with IATA’s goal of 100% e-ticketing globally by year’s end, making
the paper ticket obsolete.
We will continue to improve and enhance our inflight experience so each customer leaves wanting to return.
This means creating an environment that fosters Service Excellence, from check-in through baggage claim.
Our inflight experience will be second to none with a true focus on customer satisfaction, enjoyment and
comfort. In addition, we anticipate adding new routes to our global network, including Sao Paulo, Brazil. In
2008, Korean Air will fly to at least 115 cities on at least five of the world’s six continents, truly defining us as
a leading global airline.
Each of Korean Air’s 17,000 management and employees is dedicated to securing global leadership through
stronger competitiveness and substantial growth, and your continued encouragement and support is essential to our success. We thank you for your past loyalties and look forward to your trust in the future.
Thank you.
Cho, Yang Ho
Chairman & CEO
008 · 009
BOARD OF DIRECTORS
“ To maintain substantial growth and reinforce our
competitive edge, we will continue to strengthen our focus
on profitable routes and enterprises, products that
customers demand and view as valuable. ”
01
02
03
04
05
06
08
01. Cho, Yang Ho
Chairman & CEO
02. Lee, Jong Hee
President & COO
04. Kim, Seung-Yu
Director
Chairman & CEO
Hana Financial Group
General Counsel
Senior Partner
LEE & KO
05. Hong, Young Chul
Director
Chairman & CEO
KISWIRE
Director
Professor
Seoul National University
Director
Laywer
Doo-re Law Firm
09. Cho, Hang Jin
Executive Vice President
Korean Air Aerospace
Business Division
10
03. Lee, Tae Hee
06. Park, Oh Soo
08. Lee, Sog Woo
09
07
10. Suh, Yong Won
Executive Vice President
Korean Air Human
Resources Development
07. Kim, Jae Il
Director
Professor
Seoul National University
KOREAN AIR ANNUAL REPORT 2007
010 · 011
CORPORATE GOVERNANCE
Korean Air emphasizes corporate ethics in the activities of all of our employees and
management. The Company is also fully aware that corporate openness will enhance
our corporate image and strengthen our competitiveness.
Korean Air is fully committed to shareholder value through ethical behavior and social responsibility. In an effort to effectively
deliver corporate transparency, the Company continues to maintain regulatory systems and operational processes ranging
from major decision-making to everyday activities.
The Board of Directors makes important decisions of the company and guarantees independence in its work. Korean Air’s
executive team reports to the Board at meetings so that all decisions can be made based upon a clear understanding of the business situation. The three committees under the Board - the Audit, Outside Director Nominating and Executive committees maintain objectivity in business, impartiality in nominating directors, and expertise in decision-making.
Korean Air continues its efforts to encourage fair competition. Since the company announced its fair trade policies in 2004,
Korean Air has maintained a ‘self-observance educational program’ to allow fair trade practices to take root and extend, while
preventing unfair trade practices. Korean Air also is strengthening training programs to promote ethical practices among
management and employees.
The Company emphasizes corporate ethics in the activities of all of its employees and management. Korean Air introduced
standards for value judgment and behavior through its Corporate Code of Ethics and Practice Guidelines, and continues to
make all employees aware of the importance of corporate ethics by providing relevant information and recurring training.
Since 2001, in particular, the Company has been helping all employees make corporate ethics a habit through mandatory corporate ethics courses, and all new employees are required to submit a written corporate ethics pledge. In 2006, Korean Air
strengthened its ethical behavior principles on conducting business with interested parties.
In addition, Korean Air operates an Internal Misconduct Reporting System to help eliminate potential solicitations within the
organization, unfair or unethical conduct, and irregularities in transactions with outside parties. Any of the above activities
that are reported are thoroughly investigated by the Audit Department.
To achieve corporate transparency, Korean Air is committed to increasing the reliability of all disclosed financial information
and strengthening accounting transparency through our Internal Accounting Control system. Through an advanced internal
accounting control system, we regularly monitor the efficiency of the internal accounting management and the operating status of internal controls.
Korean Air is fully aware that corporate openness will enhance our corporate image and strengthen our competitiveness. We
will continue our efforts and practices to further achieve our goal of true corporate transparency.
EXCELLENCE
AT WORK
Despite enormous challenges in 2007, Korean Air recorded a strong
growth of 9.1% with KRW8,812 billion in revenues by strengthening its route
networks and improving global sales activities. Last year, we accepted five new
airplanes and upgraded three existing ones. Since 2004, Korean Air has consecutively been ranked the world’s No.1 in FTKs by IATA and expects to retain that
top position again in 2007. Customers have shown a very positive response to
our upgraded premium seats, a state-of-the-art inflight entertainment system
and improved inflight food service. The year provided Korean Air with platforms for maximizing its potential for future growth.
8,812
KRW
billion in revenues
Up 9.1%
EXCELLENCE AT WORK
2007 AT A GLANCE
Korean Air: A Year in Review
Despite huge challenges in 2007,
Korean Air countinued to expand
with operating revenue increased by
an impressive margin. SkyTeam
retained its worldwide leadership
with the addtion of the new carriers to
the alliance. Korean Air also positioned itself as the airline company
that contributes to cultural exchanges
by partnering with Musée du Louvre.
All these efforts were acknowledged
by the world’s prestigious awards
Korean Air won last year.
Korean Air to Establish New
Low Cost Carrier
In June 2007, Korean Air announced
that it would launch a low cost carrier,
provisionally named “Air Korea”, and
disclosed its details in November, saying that the carrier would begin operation in 2008. Air Korea will use
Incheon International Airport as its
base airport, and after launching
domestic routes, it plans to gradually
widen its network to short-or-middistance international destinations.
Korean Air: A Launch
Customer for the B787
Dreamliner
On July 8, 2007, Korean Air participated as a launch customer at the rollout ceremony of the Boeing 787
Dreamliner at the Boeing Everett facility near Seattle. The rollout ceremony
was especially meaningful to Korean
Air because the airline is not only part
of the launch customer team awaiting
delivery, but also one of the suppliers
participating in the manufacturing of
the state-of-the-art airplane. Delivery
will begin in 2009 and extend through
2013.
Korean Air Welcomes China
Southern to SkyTeam and
Three Associate Airlines
In November 2007, Korean Air welcomed SkyTeam’s eleventh full member - China Southern Airlines - to the
alliance, of which the airline is a
founding member. “We look forward
to fostering closer ties with our new
Chinese partner to expand our presence in China,” said Mr. Yang ho Cho,
Chairman and CEO of Korean Air.
Meanwhile, in September, SkyTeam
added Air Europa, Copa Airlines and
Kenya Airways as the first official
SkyTeam Associate Airlines to the
alliance.
Korean Air Sponsors Louvre
Museum’s New Multimedia
Guide
In February 2008, Korean Air
announced it was partnering with
Musée du Louvre to enhance art and
cultural understanding for people all
over the world. As part of the agreement to co-sponsor the Louvre’s
innovative new multimedia guide,
commentary is translated into seven
languages including English, German
and Korean. Being the first of its kind
between a global airline and international museum of this stature, it is also
the first time any guide has been available in their mother-tongue for the
tens of thousands of Korean visitors
who visit Louvre.
KOREAN AIR ANNUAL REPORT 2007
014 · 015
Korean Air’s Major Awards in 2007
One of the Best “Cellars in the
Sky”
In February 2007, Korean Air’s world
class wine service has been recognized
by Business Traveller magazine (UK)
as having one of the industry’s best
wine services. In its annual competition to find the finest airline wines in
First and Business class, Business
Traveller honored Korean Air in six
categories including best business class
white wine. Korean Air offers wines
from nine different countries to meet
the diverse tastes and preferences of its
international passengers.
Korean Air Wins 3rd Mercury
Award for “A Letter From
Flying Mom”
On March 9, 2007, Korean Air
received the prestigious ‘Mercury
Award’ from the International Travel
Catering Association (ITCA) for the
development and service implementation of “A Letter From Flying Mom”
service for unaccompanied minor
passengers and their families. Started
in 2002, the service is designed to provide closer personal service for unaccompanied minor passengers and give
reassurance to parents that their children are being well taken care of.
Best Economy Class in World
Airline Awards
Korean Air was named the world’s
Best Economy Class 2007 in the
Skytrax 2006/7 World Airline Awards
in July 2007. The World Airline
Awards, regarded around the globe as
the leading independent monitor of
passenger opinions, recognized
Korean Air’s “new level of achievement,” which reflects “ a strong combination of both product and staff service quality.”
“Excellence in Entertainment”
Recognized by WAEA
In September 2007, Korean Air won
top honors in the World Airline
Entertainment Association’s (WAEA)
2007 Avion Awards, ranking among
the top airlines for “Best Achievement
in In Flight Entertainment” and one of
the top in “Best in Region - Asia &
Australasia” category. Korean Air was
recognized for its vast investment such
as AVOD in all cabins and creative service enhancements such as the launch
of its new entertainment guide
‘Beyond.’ Top rankings in the Avion
Awards are confirmation that Korean
Air’s in-flight entertaiment is on the
right track to realizing its mantra
“Excellence in Entertainment,” staying true to the airline’s mission,
“Excellence in Flight.”
EXCELLENCE AT WORK
BUSINESS AT A GLANCE
Passenger Business
Cargo Business
Business Profile
With continued efforts in fleet and
network expansion and the introduction of new services, Korean Air passenger business grew 9.7% in operating revenue in 2007, an impressive
growth attained despite enormous
challenges and competitions it faced
last year.
Operating Revenues
(in billions of KRW)
For three consecutive years since 2004,
Korean Air’s cargo business has been
ranked the world’s number one in
FTKs by IATA and it expects to retain
that top position again in 2007.
Korean Air will continue to be successful and solidify its position as the
leader of global air cargo industry.
Passenger Business
Cargo Business
5,217
2,533
KOREAN AIR ANNUAL REPORT 2007
Aerospace Business
For the last three decades Korean Air
has been leading the nation’s aerospace industry and has become the
Asia-Pacific hub for aircraft maintenance, delivering over 3,500 aircraft so
far. Now it produces commercial aircraft structure components including
the B787s and expands to satellite
development and other operations.
Catering Business
In 2007, Korean Air provided almost
50,000 meals per day and recorded a
significant sales growth of 13.8% to
KRW 58.4 billion. Korean Air offers a
wide range of dishes to cater to its passengers’ tastes and is continuing its
efforts to develop traditional Korean
inflight meals as a way to promote
Korean culture.
016 · 017
Hotel & In-Flight Sales Business
Korean Air’s efforts to maximize customer satisfaction continued last year.
Despite an overall revenue decrease by
4.6% due to competition and large
investments, Hyatt Regency Incheon
grew 14.5% in 2007. Two other business sectors, KAL Limousine Bus and
In-flight Sales, increased by 4.8% and
20% respectively.
Aerospace Business
Catering Business
Hotel & In-Flight Sales Business
235
58
35
* In-Flight Sales revenues are not included
EXCELLENCE AT WORK
PASSENGER BUSINESS
Through a wide range of sales and profit
enhancement activities, the Passenger
Business Division strengthened its revenue
management and increased high-yield
destinations to protect earnings and meet
changing demands.
22.8
mil.
total passengers carried
Passenger Business Review 2007
In 2007, Korean Air faced enormous challenges due to newly
established low-cost airlines, Korea’s economic recession,
and a prolonged slump in exports. In addition, oil prices
soared to unprecedented levels, severely impacting the global airline industry in general. Conversely, expectations were
and remain high because of a strengthened Korean Won, an
increase in outbound travel due to the five-day workweek,
and openings of the Chinese, Japanese, and Southeast Asian
markets.
The Passenger Business Division concentrated on a wide
range of sales and profit enhancement activities including
identifying new markets and demand, expanding our global
route network, promoting our premium class seats,
strengthening our revenue management and operating
flight schedules in a convenient as well as profitable manner.
We reduced under-performing routes and increased highyield destinations to protect earnings by adjusting supply to
meet changing demands. At the same time, we spared no
Composition of Revenues by Route(%)
KOREAN AIR ANNUAL REPORT 2007
018 · 019
efforts on developing new markets by launching new regular
passenger flights to Cebu, Madrid, Zhengzhou, Melbourne,
Chiang Mai, and between Busan and Manila.
Passenger Business
To further enhance the Sky Team Alliance’s market leadership, China’s largest airline, China Southern Airlines, joined
our Alliance and started providing convenient flights to
international passengers traveling between China and the
Americas, Europe, and Oceania. We also started codeshare
service with Hawaiian Airlines, followed by welcoming Air
Europa, Copa Airlines and Kenya Airways into SkyTeam as
our first associate airlines, further expanding our network
covering Europe, the Americas, and Africa.
Following the year 2006, Korean Air has been keeping on
identifying and creating a series of new programs to differentiate its service for premium passengers and VIP members
of our frequent flyer program, thereby offering more value
for loyalty to the airline.
Our automatic e-ticketing service in domestic airports has
reached 100 percent and includes a system to collect excess
baggage charges. And in international airports, 99 percent
of our passengers are using e-tickets, allowing travelers to
check in for their international flights at self check-in kiosks.
Description
2007
2006
Capacity (‘000 ASK)
76,181,620
71,894,436
5.96%
Traffic (‘000 RPK)
55,353,818
52,177,665
6.09%
Passengers Carried
22,834,003
22,353,169
2.15%
Yield (KRW/RPK)
88.4
81.9
7.94%
Yield (￠/RPK)
9.42
8.81
6.92%
Fleet Utilization
YoY (%)
(Unit : Flight Hours/Day)
2007
2006
2005
YoY (%)
11.3
10.5
9.9
7.6%
EXCELLENCE AT WORK
The new IT systems also provide improved baggage-tagging
for our priority passengers.
Last year, we accepted five new airplanes, and Korean Air’s
engineering expertise was put into use upgrading 17 existing
ones since 2005. Customers are showing a very positive
response to our upgraded premium seats, an extensive and
state-of-the art inflight, on-demand entertainment system
and improved meals and food service.
International Passenger Market Share
(Korea In/Outbound, No. of Passengers)
Business Plan 2008
The world’s economic landscape is expected to remain
volatile, and Korean Air is meeting these industry and global
challenges head-on with a motto of “solidifying growth on a
foundation of substance and efficiency”.
In order to strengthen substance and efficiency, we are using
flexible strategies to make sure our fleet and schedules are
efficient and meeting demands in our core target markets.
We’ll also employ flexible strategies to prepare for Korea’s
airline deregulation and the challenge low cost carriers bring
Domestic Passenger Market Share
(No. of Passengers)
KOREAN AIR ANNUAL REPORT 2007
to our market. One of our most visible tactics is to launch a
low cost carrier of our own, Air Korea (provisional name), to
meet changing market demands.
To maintain a continued momentum for dynamic growth,
we will launch passenger service to Sao Paulo to secure a
foundation in South and Latin America. We are also establishing a second hub in Germany by launching flights to
Munich. And we always are poised to review emerging markets to determine profitability and potential demand.
Meanwhile, in our quest for improving work process and
efficiency, e-ticket database and the PAXIS will be brought
in, providing a passenger information processing system
that uses global market information to support us in making
informed decisions.
We are constantly striving to lead our industry with remarkable customer service by further strengthening our existing
systems and activities, as well as determining new services
that increase and enhance customer demand while providing efficiencies and profitability.
Seat Class Composition by Revenue Terms
020 · 021
EXCELLENCE AT WORK
CARGO BUSINESS
Maintaining its strategy of expanding the
service neworks, Korean Air Cargo continues
to retain its leadership as the world’s number
one cargo carrier.
2.3
mil.
total tons of freight carried
Business Review in 2007
With a steadfast revenue increase of 6.8% compared to 2006,
Korean Air Cargo posted KRW 2.5 trillion in revenue for
2007 despite a yield drop by 0.6% caused by an increasingly
competitive market situation in Korea. On the freight capacity side, with a flexible schedule policy patterned by the actual market demand, Korean Air Cargo marked 9,678 million
ton-kilometers - a 9.3% increase over the previous year.
With such strong capacity, Korean Air Cargo recorded 2.3
million tons of total freight and mail carried. This figure is a
7.9% increase over 2006.
ously since 2001, which is at the core of its cargo strategy, and
again extended its network to four new cities in 2007, including Moscow, Houston, Xiamen and Munich.
Korean Air Cargo has solidified its position in the China air
cargo market through adding frequencies to our existing
cargo power points such as Shanghai and Tianjin and new
freighter service to emerging cargo centers like Xiamen. By
forging this proactive market development, China has
become the 2nd largest market base of Korean Air Cargo,
only after our Korean market.
For three consecutive years since 2004, Korean Air’s Cargo
business has been ranked the world’s number one in FTKs
by the International Air Transportation Association (IATA)
and Korean Air Cargo expects to retain that top position
again in 2007. All of these achievements were made possible
by Korean Air’s strengthening of overseas sales capabilities
and our continuing efforts to develop new markets.
Meanwhile, Korean Air Cargo has focused on developing
new products to offline destinations. ‘Latino Express’ is the
effective sales vehicle to highly profitable Latin American
destinations. By providing the seamless connections and
real-time cargo status information, the ‘Latino Express’ has
proven itself as option that competes effectively with the online service of other airlines.
Revenue Enhancing Activities
Cost Saving Activities
Korean Air Cargo has been expanding its network continu-
As ever increasing fuel prices erode profitability in the air
KOREAN AIR ANNUAL REPORT 2007
cargo industry, Korean Air Cargo is rearming its fleet with
more fuel efficient aircraft. By ordering five each new B7478Fs and B777Fs, Korean Air Cargo has set its path of transforming itself into the world’s most fuel efficient cargo fleet.
This transition of fleet type is expected to start in 2011.
Additionally, through precise demand forecasting, Korean
Air was able to reduce the cost of leased freighters by reducing the less-than-expected load factor flights.
2008 Plans for the Cargo Business
On top of such remarkable achievements in 2007, Korean
Air is preparing for many new challenges in 2008.
Continuously escalating fuel prices will have the greatest
affect on the profitability of Korean Air Cargo in this year
and in the foreseeable future. Therefore, Korean Air Cargo’s
overall business plan is designed to minimize the negative
impact of fuel cost pressure on the cargo business while preserving the vitality and potential for continuous, strong
growth.
Korean Air Cargo will focus on maximizing the revenue
potential of capacity while adding the least number of new
aircraft. In 2008, Korean Air Cargo takes delivery of only two
B747-400 freighters converted from passenger aircraft.
022 · 023
However, with three outgoing freighters (one B747F and
two Airbus freighters) to Grand Star, Korean Air’s cargo
joint venture in China, total capacity of freighters of Korean
Air Cargo will remain almost the same throughout 2008.
Instead of adding new freighters to our fleet, Korean Air
Cargo will reorganize its network and revise its schedule to
ensure increased freighter operating hours and more intraAsia frequencies from which Korean Air Cargo expects
lower costs and high yields.
The total revenue target of Korean Air Cargo in 2008 is set as
KRW 2,665 billion, an increase of 12% over 2007. To attain
this impressive target, Korean Air Cargo has formulated the
strategy matrix for 2008 as follows:
First, Quality as the momentum for the further growth
As the air cargo industry becomes saturated in most global
markets, quantity-oriented strategies will fail to secure
momentum for further growth. Korean Air Cargo, by reinforcing and improving its logistics value chain, will focus on
the more profitable quality-oriented market segments. To
achieve this strategic drive for quality, Korean Air Cargo is
proactively redesigning its quality matrix on every critical
logistics path, with the goal to exceed all other air logistics
providers in terms of quality.
EXCELLENCE AT WORK
Second, retaining Leadership the world air cargo industry
Korean Air Cargo will continue to retain its position as the
world’s number one freight carrier, a position it has attained
in a mere 40 years. Retaining this position demands us to
strengthen our brand, increase our abilities and create a
vitality in the global air cargo business.
Third, Profitability through customer satisfaction
Korean Air Cargo’s value to the worldwide logistics business
and to Korean Air’s shareholders can be achieved by attaining the above strategic goals. By tapping into every opportunity for quality markets and higher efficiency, Korean Air
Cargo will continue to be an impressive factor in the world
cargo business. Moreover, winning and keeping our customers’ loyalty is essential to maintaining our global leadership position in 2008 and beyond.
Cargo Business
Description
2007
2006
12,992,069
11,661,645
11.4%
Tarffic (‘000 FTK)
9,677,679
8,857,155
9.3%
Carried Tons
2,281,671
2,115,089
7.9%
Yield (KRW/FTK)
244.6
246.7
-0.9%
Yield (￠/FTK)
26.07
26.23
-0.6%
Capacity (‘000 AFTK)
YoY (%)
Outlook in 2008
Korean Air Cargo is impacted by the issues facing the world
economy. Still, demands for high-priced consumer electronics, which is the major commodity from Asian countries
to US and EU, should remain at the current demand level.
The Korean export market in particular, which relies heavily on sophisticated consumer and industrial electronics,
should maintain the same demand level as 2007. Eastbound
traffic from China and Southeast Asia will remain strong as
in 2007, but increased market competition and accelerated
pressure from fuel costs on the long hauls could erode a significant portion of profitability.
In the US, the weak dollar (against other major currencies,
including Euro, Yen or the Korean Won), could show a
noticeable increase in westbound demand. However,
despite such a strong surge in demand, the weaker dollar
might offset the net contribution.
Fleet Utilization
(Unit : Flight Hours/Day)
2007
2006
2005
YoY (%)
14.2
15.0
15.0
-5.3
KOREAN AIR ANNUAL REPORT 2007
The EU will remain strong in both export and import,
regardless of its strong Euro. However, as global repositioning of Asian manufacturing companies becomes complete,
there will be a need for reenergizing markets and placing
increased value in the brand.
Though there is cautious optimism in the market for 2008,
Korean Air Cargo will continuously focus on profitability
through optimizing its network and resources. In addition,
by extending its long time tradition of winning the customers, Korean Air Cargo will continue to be successful and
solidify its position as the leader of global air cargo industry.
KE’s Share in Korean Market
024 · 025
EXCELLENCE AT WORK
AEROSPACE BUSINESS
Through teaming up with such worldleading aircraft manufacturers as Boeing and
Airbus, Korean Air marks a turning point to
becoming a more technology-oriented
company.
Introduction
Korea’s aerospace history began with the production of
500MD helicopter by Korean Air in 1976. In a relatively
short period, Korean Air has manufactured and delivered
the F-5 ‘Jegongho’ fighter - representing a milestone in
Korean aerospace industry. Also it has produced the UH-60
‘Black Hawk’ helicopter featuring superior mobility and sustainability.
Korean Air Aerospace division has been expanding its capabilities to commercial aircraft structure manufacturing,
satellite development and other business areas to optimize
its business structure. And it has been successfully managing
all business sectors for more than 30 years.
Aerospace Division’s main plant, the Tech Center, is located
in Busan on a 170-acre site with aircraft hangars, painting
and electronic components overhaul facilities, etc. Korean
Air also operates the ‘Korea Institute of Aerospace
Technology’ in Daeduck Science Town on a 40-acre site, to
promote state-of-the-art technology in aerospace design and
development.
Since 1978 Aerospace Division has become the Asia-Pacific
hub for aircraft maintenance, delivering over 3,500 aircraft
so far.
With its vast experience, it now provides logistic supports for
F-4 fighter, P-3C anti-submarine patrol aircraft, 500MD,
UH-60, CH-47, LYNX, ALT-III helicopters for Korean government and A-10 Attacker, F-15 and F-16 fighters, and CH53 helicopters for the US government.
Business Review in 2007
Korean Air’s Aerospace Division has participated in
KHP(Korea Helicopter Program) which has been develop-
20
aircraft to be modified to
freighters by 2014
ing the aft fuselage and tail rotor system. It also performed
the crash damage recovery program for C-130 Hercules. The
Division recently commenced its B747 cargo conversion
program and successfully delivered three aircraft by the end
of 2007.
The Aerospace Division has been working with Boeing to
develop the next generation B787 Dreamliner aircraft for
years, and is playing a leading role in the joint development
and manufacturing of the aircraft. Korean Air is one of seven
international partners for the 787 development program.
The Aerospace Division has invested in equipment and facilities to manufacture the advanced composite product for the
B787 and has developed new equipment for the advanced
design and manufacturing techniques required for B787
parts development. The participation in these programs,
teamed up with major companies around the world, will
definitely be a turning point to becoming a more technology-oriented company.
In 2007, the first articles such as raked wing tips, flap support
fairings and section 48 aft body for the B787, were delivered
to the customer. For excellent performance in quality and
on-time delivery, Boeing selected Korean Air Aerospace
Division as “Supplier of the Year”. By winning this prize the
second time since 2001, Korean Air Aerospace Division has
been recognized as one of Boeing’s best partners in the new
aircraft development.
Korean Air Aerospace Division signed a contract with
Airbus to supply Elevator Assemblies for its best-selling
A320 family and delivered the first Elevator in 2007. Based
on this seed program, the Aerospace Division is now in discussions with Airbus to participate in the development of the
A350 extra wide body.
KOREAN AIR ANNUAL REPORT 2007
The Aerospace Division has experienced continued growth
in the space business. Major ongoing space projects include
KSLV-I (Korea Space Launch Vehicle) System integration
and ARIRANG 3/5 satellite Main Bus and Solar Array
System structure development. The COMSAT(Communication, Ocean and Meteorological Satellite) antenna development project was also successfully completed and preliminary research activities on Liquid Rocket Engine System
integration and test facilities were begun.
026 · 027
and civilian.
Korean Air Aerospace Division has plans to increase synergy
and efficiency, and will reform its military business structures according to the government’s regulation relief. We
also are targeting a revenue of $300 million in 2008.
Revenue
Close-range surveillance UAV(Unmanned Aerial Vehicle)
and high-precision GPS navigation system development
projects were also successfully completed. The Aerospace
Division began efforts to develop next generation
UAS(Unmanned Aerial System) as the next step toward
becoming Korea’s UAV market leader.
(In billions of KRW)
Commercial
(In billions of KRW)
Military
Going Forward
Based on the remarkable and successful results of 787 development and manufacturing through on-time, high quality
delivery, Korean Air Aerospace Division has started the
development of 787 derivatives. In 2008, the Aerospace
Division will continue to expand its active participation in
the development of new aircraft such as B787-9, B747-8 and
A350 XWB. And it will align available resources and capacity to ramp up the production line for sharply increased rate
of the 787 programs.
Korean Air Aerospace Division will expand its business area
to commercial aircraft heavy maintenance and component
overhaul of various kinds of military aircraft.
The Aerospace Division will continue its research efforts on
Liquid Rocket Engine system integration and test facilities
development in an effort to expand its space business and
focus on the UAS(Unmanned Aerial System) for defense
EXCELLENCE AT WORK
CATERING BUSINESS
To satisfy different tastes and cultural
backgrounds of passengers, Korean Air offers
a wide range of international cuisines and
provides specially-prepared meals.
Business Review in 2007
With more than 30 years of experience, Korean Air Catering
(KAC) supplies in-flight catering services not only to Korean
Air, but also to 33 foreign carriers such as Singapore, United
Airlines, Air France, JAL, China Southern and others. In
2007, KAC provided almost 50,000 meals per day and
recorded a significant sales growth of 13.8% to KRW 58.4
billion, up from KRW 51.3 billion in 2006. This is mainly
attributed to the increase in demand from domestic and
international airlines with increase in international passenger flights. KAC is the first airline catering organization in
Korea to be certified by the government authority assuring a
commitment to HACCP professional standards. Such
recognition demonstrates KAC’s competitiveness as a leading inflight caterer and affirms Korean Air’s superior quality
in the airline catering business.
Automated Facilities
Korean Air’s Catering Center at Incheon was customdesigned by a consulting company specializing in the construction of such automated facilities. In line with similar
facilities worldwide, the plant utilizes the latest energy-saving systems and equipment. The facilities make use of hitech equipment and systems such as electric monorail cart
transportation and storage systems. Additionally, a Gantry
Crane Robot System, designed to move and store cleaned
transit carts, was introduced for the first time in the airline
catering industry. With these automated systems, KAC can
offer competitive prices while maintaining superior quality.
Food Quality Assurance
In-flight cuisine plays a vital role in assuring satisfaction to
the air traveler who is always looking for the best in service.
The research and development team at KAC works continuously to develop meals and menus that render a more
delightful culinary experience during flight. Currently, KAC
offers a wide range of Western, Korean, Chinese, and
Japanese dishes as well as children’s meals, and provides specially-prepared meals in response to personal, religious or
medical requests. KAC is continuing its efforts to develop
traditional Korean inflight meals as a way to promote
Korean culture to world travelers. Currently, almost 30 traditional meals, such as Bibimbab, Bibimguksoo, Bulgogi and
Galbi are served on Korean Air flights.
Flight Kitchen in Busan
Korean Air’s Flight Kitchen in Busan, which opened in 1987,
provides high quality meals to international flights departing
from Busan. In 2007, Korean Air’s Flight Kitchen in Busan
offered almost 4,000 meals a day to 17 international carriers.
Going Forward
Korean Air will continue to maintain the world’s best inflight meals as we strive to meet the diversified needs of our
passengers. As Incheon Airport positions itself as a hub of
Northeast Asia, Korean Air’s catering business expects to
attract a host of new clients with the increasing number of
passengers enjoying the delights of Korean Air Catering.
KOREAN AIR ANNUAL REPORT 2006
028 · 029
HOTEL & IN-FLIGHT SALES BUSINESS
While passenger sales increased 9.1% in 2007,
in-flight sales jumped over 20% during the
same period. Korean Air also provides quality
lodging, and creates synergies between hotels
and its core air transportation business.
Business Review in 2007
Korean Air Hotels
Korean Air operates three hotels in Korea[Jeju KAL Hotel,
Seogwipo KAL Hotel and Hyatt Regency Incheon] and one
in the United States[Wilshire Grand Hotel & Center].
Through the hotel business, Korean Air not only maximizes
customer satisfaction by providing high quality service, but
also creates synergy between hotels and its core air transportation.
Combining its contemporary design and state-of-the-art
technology with classic standards of service excellence, Hyatt
Regency Incheon offers high quality service with world-class
comfort and luxury.
While KAL hotels recorded decreases in revenues by 4.6%
due to the fierce competition in leisure market of Jeju, Hyatt
Regency Incheon achieved a strong performance, posting
14.5% revenue increase from a year earlier.
Meanwhile, with the completion of ballroom renovation in
2007, Wilshire Grand Hotel has been in the middle of large
long-term investments for the main facilities including guest
rooms and restaurants. These investments will make it more
profitable and provide customers with upgraded hospitality.
KAL Limousine Bus
KAL Limousine Bus Service provides customers with the
most convenient transportation by connecting domestic and
international airports with major areas in Seoul. Revenue
from KAL limousine bus service increased by 4.8% over
2006 to KRW 17.4 billion.
KAL Limousine Bus Service is striving to ensure safe and
speedy operations as well as to improve its service qualities
by offering better schedules and routes.
In-Flight Sales
Korean Air’s in-flight sales recorded revenues of $209 million in 2007.
Passenger sales increased 9.1% in 2007 whereas in-flight
sales jumped over 20% during the same period. This outstanding in-flight sales record was due to the cabin crews’
endeavors as well as the continuous support from the management.
In 2008, Korean Air expects revenues to increase again. One
of the main reasons for this sales record was based on the
Korean Air’s “pre-order system”, which allows customers to
view and pre-order items prior to flights online. Because of
various marketing strategies and promotions, these online
passenger orders have constantly increased.
This past year, Korean Air introduced 43 new items and 77
upgraded items in order to adapt the passengers’ rapidly
changing demands.
In 2008, Korean Air aims to further improve the in-flight
sales to passengers through continuous cabin crew training,
introduction of specialty and upgraded items, and an
enhanced pre-order service.
EXCELLENCE
IN ACTION
Korean Air continues to live up to its ‘Operational Excellence’ vision.
As one of the world’s most punctual airlines, Korean Air’s operational reliability supports the airline’s mission of quality maintenance and excellence in safety. As a proud architect and founding member of SkyTeam, Korean Air is gradually increasing strategic alliances with the world’s major airlines as part of its
vision of offering ‘Service Excellence’ to its passengers. Setting our sights on
achieving ‘Innovative Excellence,’ we are continuously innovating our cabins
and upgrading fleet with next generation aircraft, strengthening our position
as a carrier with a reputation of global reliability and quality.
9,490
KRW
billion
2008 revenue target
EXCELLENCE IN ACTION
MAINTENANCE & ENGINEERING
With a global reputation for high standards and technical excellence, Korean Air enjoys
one of the world’s best dispatch reliability records, and is providing comprehensive
maintenance support and service for aircraft, engines and components to more than 30
customer airlines operating in Korea.
Overview of Maintenance & Engineering
Korean Air has one of the world’s best dispatch reliability
records and has provided comprehensive maintenance support and service for aircraft, engines and components since
1969. About 3,600 highly skilled and motivated personnel
are working in the four major maintenance bases located in
Gimpo, Incheon, Bucheon, and Gimhae. With a full capability of airframe heavy maintenance, Korean Air performs
major repair and modification on its own fleet and offers
overall maintenance support for more than 650 international flights in a week. Korean Air also has an overhaul capability on PW4000 series and JT9D engines and an internationally acclaimed reputation for engine MRO (Maintenance,
Repair, and Overhaul).
Korean Air’s maintenance operation continues to live up to
its ‘Operational Excellence’ vision. In April 2007, Airbus and
Boeing announced Korean Air as the best on-time operator
in the world. In December 2007, China’s World Traveler
magazine and the US’s Forbes economic magazine acknowledged Korean Air as one of the world’s most punctual airlines. Korean Air’s operational reliability supports the airline’s mission of quality maintenance and excellence in
safety.
Our highly reliable maintenance capability and technical
excellence has led Korean Air to contract with a variety of
global customers. For example, United Airlines selected
Korean Air as a partner to perform cabin upgrades because
of its excellent heavy maintenance experience with Korean
Air. Worldwide aviation authorities such as FAA(Federal
Aviation Administration), EASA(European Aviation Safety
Agency), and CAAC(Civil Aviation Administration of
China) have all lauded Korean Air’s expertise, and we will
continue to invest in better service of our customers .
Korean Air has been achieving the highest quality in all
aspects of its operation and as a major partner in the
SkyTeam alliance, we are gradually increasing strategic
maintenance alliances with other airlines. Korean Air’s ERP
project will replace current Maintenance & Engineering
Systems with state-of-the-art information and technology
systems. The airline will spare no expense in order to be a
competitive leader in Maintenance & Engineering with a
reputation of global top reliability and quality.
KOREAN AIR ANNUAL REPORT 2007
032 · 033
SAFETY
Korean Air’s management policy is to continue substantial growth and increase its global
competitiveness, based on an absolutely safe operational system. With the spirit of
operational excellence, Korean Air is now looking to be known and acknowledged as one
of the world’s safest airlines.
Operational Safety for Accident Prevention
Korean Air has maintained the management policy of
Operational Excellence, and completed its eighth consecutive year of accident-free operations. We are now looking to
be known and acknowledged as one of the world’s safest airlines.
In support of this core value, we nourish our accident prevention system by identifying, analyzing and correcting any
safety hazard before it becomes an issue. Any unsafe element
detected during operation leads to a comprehensive investigation to find the cause and prevent the recurrence of a similar irregularity. All information gathered from this procedure is thoroughly recorded into a database system that will
be reinforced by the Safety Management System (SMS),
scheduled to operate this year. SMS will be the international
standard by ICAO beginning 2009. Last July, we launched
the corporate SMS task force to establish the SMS that will be
the foundation for a superb safety reputation.
In addition, Korean Air has focused on safety activities during aircraft ground handling at both home base (ICN &
GMP) and the other domestic and overseas stations. The
efforts resulted in an outstandingly low ground damage rate.
It was reduced to 0.06 case per 10,000 flights; a rate of 1/3 of
the 2007 goal of 0.18. We will keep supporting ground safety
by analyzing job hazards and activating a thorough safety
training program.
Korean Air’s management policy of 2008 is to continue substantial growth and increase our global competitiveness,
based on an absolutely safe operational system.
Moreover, to strengthen flight safety, Korean Air’s FOQA
(Flight Operation Quality Assurance) animation program
will be up-graded and FOQA irregularities intensively con-
trolled. Last but not least, our safety culture will be increased
through safety policy revisions, activation of safety reporting, and the encouragement of employees’ participation in
safety education activities.
EXCELLENCE IN ACTION
FUEL MANAGEMENT
Last year, Korean Air achieved a fuel cost savings of 46.1 billion won directly attributable
to our concerted initiative efforts. We are reinforcing our performance monitoring and
continuing our focus on our outcomes in order to become the world’s leading carrier in
fuel management.
Oil prices began escalating starting in 2003 and have continued to rise in 2007. Korean Air’s efforts to achieve fuel cost
savings and environmental responsibility have continued to
increase as well.
In June 2007, we were evaluated for the implementation of
our advanced fuel managing process by an IATA Fuel GoTeam (which is a fuel management expert group) and we are
ranked as top global carrier in fuel management.
Korean Air founded a fuel management team in 2004 and
this group has been hard at work ever since, including the
formation of a fuel management database since 2005 and
inclusion of representation of all divisions into this group.
From 2008, we will continue to maintain our initiatives to
achieve the level of global best practice in fuel management.
We are reinforcing our performance monitoring and continuing our focus on our outcomes in order to become the
world’s leading carrier in fuel management, all in the effort
to achieve profitability and sustainability.
In 2007 we achieved a fuel cost savings of 46.1 billion won
that can be directly attributed to the 22 initiatives we have
been performing since 2006 and 18 newly incorporated initiatives. Additionally, various fuel efficiency indexes, such as
fuel consumption per ATK, block time and flying time are
showing a 2.0%~2.5% improvement in fuel efficiencies
compared to those of year 2006.
KOREAN AIR ANNUAL REPORT 2007
034 · 035
SKYTEAM ALLIANCE
Since its launch, SkyTeam has grown into a leading global airline alliance with 11
member airlines. SkyTeam now serves approximately 428 million annual passengers
through a worldwide system of over 16,400 daily flights covering 841 destinations in 162
countries.
Recently, the number of partner airlines increased to 11 with
the addition of China Southern Airlines.
Korean Air founded SkyTeam, the first customer-focused
global airline alliance, with Delta Airlines, Air France and
Aero Mexico in June 2000. Since its launch, SkyTeam has
grown into a leading global airline alliance with 11 member
airlines. CSA Czech Airlines and Alitalia joined SkyTeam in
2001 and Continental Airlines, KLM Royal Dutch Airlines,
Northwest Airlines became members of SkyTeam in 2004.
Aeroflot became a member in 2006 and the number of
member airlines increased to 11 with the addition of China
Southern Airlines in November 2007. China Southern is the
first Chinese air carrier to join any global alliance. Recently,
SkyTeam recruited three associate airlines: Air Europa, Copa
Airlines and Kenya Airways.
Today, SkyTeam is the world’s second largest airline alliance
group serving 841 destinations in more than 162 countries,
with 16,409 daily flights available on an extensive global network of hubs and destinations. SkyTeam Cargo is the largest
cargo alliance, serving more than 728 unduplicated destinations in more than 149 countries.
For the last seven years, SkyTeam has accomplished remarkable development. Its market share was only 11% at the time
of foundation, but increased to 25% in 2007. The number of
FFP members increased from 40 million to 110 million
members, and destinations increased from 451 cities to 841
cities.
Through SkyTeam’s extended network, passengers enjoy
more benefits while traveling on any SkyTeam carrier, with
more choices of flights and departure times, plus frequent
flyer program benefits and seamless service. SkyTeam offers
customers worldwide access to lounges, improved choice
and convenience, consistent service and the ability to be recognized and rewarded for their loyalty.
As expressed in its slogan, “Caring more about you”,
SkyTeam will continue to develop new benefits, services, and
products that will improve the customers’ experience.
EXCELLENCE IN ACTION
SOCIAL CONTRIBUTIONS
Korean Air supports the needy and offers worldwide social contributions and disaster
relief activities in the countries we serve. These activities constitute not only social welfare but scholarships, support of the environment, medical service and natural disaster
relief.
Korean Air’s “Sharing” Management
Under the slogan, ‘Wings of Love, Wings of Hope’, Korean
Air has been concentrating its efforts on “sharing” management through a number of social contributions. As social
responsibilities of companies become increasingly important, Korean Air is extending its contributions to the world’s
societies.
It has been five years since staff and management first started the “Kkut Jun Fund Raising Movement”, which was the
starting point of Korean Air’s social contribution activity.
The accumulated fund is used to support voluntary service
organizations inside and outside the company.
Korean Air supports the needy, volunteerism, worldwide
social contributions and disaster relief activities in the countries we serve. These activities constitute not only social welfare but scholarships, support of the environment, medical
service and natural disaster relief.
Currently there are 20 social service groups under Korean
Air’s Social Service Organization. Each group provides voluntary services such as scholarships for the under-aged in
charge of households, bathing service for the physically challenged/elderly living alone and participating in social welfare
organizations. We use the benefits of an airline company by
offering round-trip tickets from/to Jeju Island to the underaged in charge of households, the physically challenged, children with leukemia and the elderly living alone.
We also donate daily necessities to villagers and deliver
donations from social welfare organizations. For example,
some voluntary social service groups under Korean Air’s
Social Service Organization continuously visit underdeveloped regions in Southeast Asia. For the past three years,
Korean Air has been aiding the Ministry of Health and
Welfare-sponsored “Disabled Youth Dream Team, Face the
World” program with round-trip tickets, volunteer translators and helpers.
Profits from Korean Air’s annual ‘Love the Sky Bazaar’,
sponsored by cabin crew members (Goni-hwae,
Sweungwoo-hwae) are used to support those in need.
Kimchi or ‘Rice of Love’ delivery events also are voluntary
social services we are providing each year.
KOREAN AIR ANNUAL REPORT 2007
On a larger front, Korean Air has been providing medical
service for residents of its sister village in Gangwon Province
and all staff and management voluntarily take part in the
‘Love House Construction’ and ‘Wee-ahja Sharing Market’.
Korean Air also is leading in disaster relief activities. We
funded aid and necessities during the year-end Jeju snow
storm disaster and delivered oil absorption materials from
overseas to support cleaning up of the worst-ever crude oil
spill on the West Coast, driven by the Ministry of Maritime
Affairs and Fisheries. Furthermore, all of Korean Air’s staff
and management worked long hours to help mitigate the
effects of an oil slick Taean, joining in nationwide efforts to
protect the environment.
Based on the honorable efforts and dynamic culture of
Korean Air, we will not only provide creative and reliable
service focused on customer satisfaction, but also endeavor
to make greater contributions to the society in which we
operate. Korean Air will continue to make its stand in its
“sharing” management by giving back time and attention to
society through substantial and continuous support.
036 · 037
EXCELLENCE IN ACTION
ENVIRONMENTAL MANAGEMENT
To satisfy our customers’ demand for services while minimizing environmental impact,
Korean Air has been continuously modernizing its fleet and raising efficiencies in
transport operations. Despite increasing demand for air travel, Korean Air has been
successfully reducing pollutants by improving fuel-efficiency.
Environmental Vision
Korean Air seeks to fulfill its corporate responsibility of preserving the environment by reducing the environmental
footprint of its operations. We have established a vision:
“Improving the Value of Life through the Harmonization of
Aviation and the Environment” and are actively involved in
worldwide efforts to make our airline operations environmentally friendly by adopting environmental management
practices and setting mid-to-long-term environmental
goals. Korean Air is dedicated to taking a proactive approach
to environmentally and economically sustainable growth.
Environmental Impact of Flying
All operations of an airline including flights, cabin service,
aircraft maintenance and ground maintenance and support
activities, have an impact on our environment. The most significant impact is flight itself because aircraft consume fossil
fuels and emit carbon dioxide. In addition, noise from
departures and landings may significantly affect neighborhoods adjacent to the airport.
Airlines have continued to make efforts to decrease the
impact of their operations on the global environment and, in
recent times, such efforts have begun to show results. For
example, many airlines, including Korean Air, have invested
in efficient new airplanes and improved operational procedures, resulting in reductions in oil consumption, fuel emissions and noise. Korean Air also looks to invest further in
environmentally-friendly technologies with an eye towards a
healthy future for our next generation.
Environment Management System
Korean Air has received the ISO14001 certification, the
international standard for environment management systems, and has introduced a corporate-wide environment
management system comprised of five sectors; the
Headquarters & General, the Aerospace Business Division,
the Maintenance & Engineering Division, the Catering
Center, and the Jeju & Seogwipo KAL Hotel.
We also aim to prevent potential damage to the environment
through environmentally friendly processes and procedures
which ensure the use of green resources, recycled wastes, and
adherence to relevant environmental laws and regulations.
Over the mid-to-long term, Korean Air seeks to fully
KOREAN AIR ANNUAL REPORT 2007
embrace green management practices across the Company.
In line with our effort, we will adopt environmental policies
and procedures in areas such as cabin service and ground
support activities.
the ‘Korean Air Ecological Park’ in China’s Kubuchi Desert.
Through 2011, Korean Air will be helping grow 1.8 million
trees at this park.
UN Global Compact
Korean Air announced in July 2007 that it joined the UN
Global Compact which is designed to promote corporate
responsibility and pursue ethical management in companies
around the world. The UN Global Compact is an international treaty launched in 2000 declaring 10 principles covering human rights, labor standards, environment and anticorruption. We expressed our decision to enter the treaty
saying that Korean Air’s ethical management guidelines are
in line with the ten principles of the UN Global Compact.
We expect this decision will boost employee and customer
loyalty through greater corporate transparency and social
responsibility.
●
Sustainability Activities in 2007
Overseas Forestation Activities
The “Korean Air Forest” is spread across more than 13 acres
outside the town of Baganuur, 80 miles east of the
Mongolian capital Ulaanbaatar. This is a living testament to
the airline’s commitment to its social responsibilities. Over
the past four years, more than 15,000 trees have been planted at Baganuur to help stem the “desertification” of the area
that is afflicted by seasonal “yellow sand” storms.
●
On October 31, 2007, Korean Air launched a five-year largescale reforestation program in the Kubuchi Desert of Inner
Mongolia, China, as well as in Mongolia itself.
Around 70 Korean Air staff members including Mr. Yang
Ho Cho, Chairman and CEO of the Company, participated
in the October tree-planting event to signify the beginning of
038 · 039
EXCELLENCE IN ACTION
Climate Change
Unlike the problem of aircraft noise, which remains a concern for communities in close proximity to airports, greenhouse gas from fuel emissions is perceived as a worldwide
issue, captivating the attention of stakeholders throughout
the world.
Though air passenger travel and cargo transportation have
dramatically increased, recent scientific research on aviation
and climate change has shown that CO2 emissions from aircraft accounts for a mere 2% of the total amount of manmade CO2 emissions. Although aviation’ s overall contribution to carbon dioxide emissions remains a small percentage
relative to the rapid growth of air transport, the airline
industry worldwide takes climate change seriously and is
committed to finding effective measures in limiting aviation's impact.
To satisfy our customers’ demand for services while minimizing the impact on the environment, Korean Air is modernizing its fleet and raising efficiencies in transport operations as a matter of policy. Our efforts to reduce
consumption of fossil fuels and curtail emissions are part of
our overall effort to promote the sustainable development of
Share of Air Transport in Global man-made CO2
emissions
Source : IPCC
(Intergovernmental Panel on Climate Change, UN)
The amount of CO2 emissions by Korean Air’s domestic operations
amounts to 0.2% of Korea’s total CO2 emissions and 1% of the total in
the transportation sector. If we include emissions by Korean Air’s
international operations, which are currently excluded from the Kyoto
Protocol, the Company emits around 2% of Korea’s total CO2 emissions.
※Data Reference: 2004 Greenhouse Gas Inventory Policy Report/ Korea Energy Economics
Institute
KOREAN AIR ANNUAL REPORT 2007
the Company while reducing its impact on the environment.
040 · 041
Korean Air has long sought to decrease fuel use by modernizing our fleet, expanding transportation networks, raising
load factors, improving maintenance and flight procedures
and reducing the weight of loads.
The Kyoto Protocol urges states to address emissions from
international aviation through ICAO. Both the Protocol and
ICAO endorse emissions trading as a mechanism to achieve
this. Given the global nature of aviation and climate change,
it is essential that emissions trading initiatives respect the
global policies and guidance developed by ICAO.
Reduction of Aircraft CO2 Emissions Ratio
Despite increasing demand for air travel, Korean Air has
been successfully reducing pollutants by improving fuel-efficiency. Indeed, much data shows that environmental pollution does not grow in direct proportion to the increase in
transport volume. For example, while ATK has increased
9.6% since 2005, Korean Air’s CO2 emissions increased only
8.3% over the same period. This signifies that a 1.3% growth
was achieved without environmental impact.
CO2 and ATK(Available Ton Kilometer)
●
EU to Include Aviation in Emissions Trading Scheme
In December 2006, the European Commission published a
proposal to include air transport in its existing Emissions
Trading Scheme (ETS). This would include flights within the
EU from 2011 and all flights to and from the EU starting in
2012.
●
It is important to note that a greenhouse gas policy should be
based on a broader international agreement. Single-handed
enforcement of a regional policy, without the support of
international stakeholders, will only distort competition and
discourage airlines in their efforts to expand their investment in the environment.
■ 2007 CO2 Emisson=12,084,850 ton
(Calculation on formula : IPCC 2006 Guideline, Tier 1)
EXCELLENCE IN ACTION
HUMAN RESOURCES
Korean Air places a significant focus on creating effective human resources policies
and strategies. Korean Air also places high value on employees’ integrity and teamwork
proficiency. Such values are strongly reflected in the employment, education,
appointment and evaluation of all our personnel.
Outline of the HR Policy
The “Company is the People” is a philosophy that has guided Korean Air’s human resources (HR) strategies and management philosophies. The philosophy is based on the late
Chairman and founder Joong Hoon Cho’s corporate principle that “People create the company and the company
evolves upon the people’s endeavors”. Since its founding,
Korean Air has placed a significant focus on creating effective human resources policies and strategies. Although many
companies highlight human resources, Korean Air has consistently been at the forefront in effectively practicing human
resource management.
Korean Air’s HR philosophy encompasses three basic principles:
a) People are the company’s most valuable resource.
b) Corporate development is achieved through people.
c) Co-development of company and people is essential.
KALMANSHIP is the term to describe the ideal type of
employee that Korean Air wants and needs to hire and retain
to succeed.
Korean Air respects and supports those who have a very
proactive mindset, possess a high sense of the global nature
of our business, are highly service-oriented, and have good
discipline. This KALMANSHIP is based on the HR philosophy, “Company is the People” and is reflected in the HR
policies.
a) Proactive Mindset
- Always think innovatively
- Future-oriented mindset breaking the stereotypes
An active and creative mindset is a significant factor and criteria in recruiting new employees to Korean Air. Korean Air
offers a number of educational programs to enhance a
proactive mindset of our employees. Korean Air also evaluates innovative thinking in our employee appraisal system.
b) Global Sense
- Be able to understand and embrace different cultures from
around the world without being self-centered.
- Be open-minded with profound cultural knowledge as well
as language proficiencies.
KOREAN AIR ANNUAL REPORT 2007
Korean Air implements various policies and guidelines to
enhance a global sense with all employees.
Korean Air instills an obligation of cosmopolitan citizenship
to our new employees by holding mandatory international
volunteer service every year.
Korean Air dispatches assistant manager level employees to
foreign stations for one year term, thus providing opportunities to acquire foreign cultures and lifestyles. Also several
employees are sent each year to one of the world’s most
renowned MBA schools to acquire advanced academic
knowledge.
c) Service-minded and Politeness
- Neat appearance, warm-hearted, good manners
- Professionalism and polite actions in all situations involving customers
Service and safety are the core and crucial factors of an airline’s business, and Korean Air places high value on employees’ integrity and teamwork proficiency. Such values are
strongly reflected in the employment, education, appointment and evaluation of all our personnel.
Personnel Breakdown
Personnel Breakdown
d) Good discipline
- Be fully responsible for the job assigned
- Maintain good interpersonal relationships with other
employees in the organization
As of December 31, 2007
Category
Male
Female
Total
Administration
2,464
1,851
4,315
Cockpit Crew
1,896
5
1,901
Cabin Crew
446
2,687
3,133
Engineering
5,152
22
5,174
348
19
367
10,306
4,584
14,890
Female
Total
Others
During the recruitment process, Korean Air carefully monitors the service-mindedness of the candidates to fit the company standard. Service-mindedness is one of the key factors
of evaluation for all Korean Air employees. Korean Air’s
Service Institute trains and educates service mindedness in
all of our employees.
042 · 043
Total
* Management and regional staffs are not included.
Breakdown of Cockpit Crew
Category
Male
Captain
762
Co-pilot
992
Apprentice
142
Total
1,896
762
5
997
142
5
1,901
FINANCIAL
SECTION
Korean Air recorded an impressive growth of 9.1% in revenues in 2007,
increasing by KRW 734.1 billion to KRW 8,812.0 billion, and operating income
increased by KRW 139.5 billion to KRW636.8 billion, recording a 28.0%
growth over 2006. The strong growth in both revenues and operating income
is mainly attributable to the continuously aggressive cost management and
enhanced productivity efforts by the Company.
637
KRW
billion
in operating income
Up 28.0% over 2006
FINANCIAL SECTION
MANAGEMENT’S DISCUSSION & ANALYSIS
Selected Financial Data
In millions of USD
(Years ended December 31)
OPERATING RESULTS
Operating Revenues
Domestic Passenger
International Passenger
Cargo
Others
Operating Expenses
Gross Profit
Selling, General &
Administrative Expenses
Operating Income
Non-operating Income
Non-operating Expenses
Income Before Tax
Income Tax Expense
Net Income
Current Assets
Cash & Cash Equivalents
Trade Receivables
Inventories
Others
Non-Current Asset
Investment Assets
Property, Aircraft and
Equipment, net
Intangible Assets, net
Others
Total Assets
Current Liabilities
Trade Payables
Short-term Borrowings
Accrued Expenses
Advance Receipts
Current Maturities of
Long-term Liabilities
Others
In billions of KRW
2007
2007
2006
2005
2004
2003
9,392.5
624.1
4,936.7
2,699.9
1,131.8
7,236.5
2,155.9
8,812.0
585.5
4,631.6
2,533.0
1,061.9
6,789.3
2,022.7
8,077.9
612.2
4,144.8
2,370.9
950.0
6,304.5
1,773.4
7,584.2
618.5
3,732.5
2,321.7
911.5
5,892.0
1,692.3
7,210.9
634.2
3,372.7
2,327.4
876.6
5,541.9
1,668.9
6,177.2
704.6
2,765.5
1,924.1
783.0
4,763.7
1,413.5
1,477.1
678.7
360.3
940.6
98.4
86.9
11.4
1.385.8
636.8
338.0
882.5
92.3
81.5
10.7
1,276.0
497.4
676.9
686.4
487.9
104.9
383.0
1,259.8
432.5
431.7
611.2
253.0
54.3
200.4
1,284.9
384.0
1,145.7
806.8
723.0
203.5
519.5
1,102.1
311.4
239.0
749.3
(198.9)
45.2
(241.1)
2,112.6
733.9
740.4
297.6
340.8
1,982.0
688.5
694.6
279.2
319.7
1,474.1
453.7
602.6
220.8
197.0
1,673.3
577.4
585.6
196.2
314.1
1,757.4
703.1
584.3
226.3
243.7
1,988.8
875.2
565.0
355.7
192.9
14,038.1
1,774.2
13,170.5
1,664.6
12,110.6
705.4
11,895.4
659.5
11,981.6
532.3
12,126.4
515.7
11,585.7
247.4
430.7
16,150.5
10,869.7
232.1
404.1
15,152.4
10,749.8
196.8
458.7
13,584.7
10,522.7
193.7
519.5
13,568.6
10,619.4
198.9
631.0
13,739.0
10,470.2
210.1
930.4
14,115.2
3,888.0
208.6
564.8
505.1
517.4
3,647.7
195.7
529.9
473.9
485.4
2,994.9
229.0
369.5
462.4
375.7
2,849.4
207.1
295.1
435.4
329.7
3,079.0
133.4
218.4
472.3
303.3
2,923.6
124.9
294.0
402.3
336.8
1,458.6
633.4
1,368.5
594.3
1,031.4
526.9
1,021.3
560.8
1,468.1
483.5
1,213.3
552.3
(Continued)
KOREAN AIR ANNUAL REPORT 2007
In millions of USD
046 · 047
In billions of KRW
(Years ended December 31)
2007
2007
2006
2005
2004
2003
Non-current Liabilities
Bonds, net
Long-term Debt, net
Asset-Backed Debt
Long-term Loan
(Foreign Currency)
7,563.3
1,982.6
682.3
139.7
7,095.9
1,860.1
640.1
131.1
6,214.3
1,470.6
131.5
13.2
6,690.4
1,477.2
175.2
72.1
6,848.9
1,171.4
138.7
244.8
7,835.3
1,042.7
312.5
539.1
1,121.1
1,051.8
969.0
780.1
690.1
55.9
Guaranteed Loans, net
60.8
Long-term Obligation under
Installment Purchase, net
273.2
Obligations under Capital Leases 2,352.5
Severance & Retirement Benefits
495.7
Others
455.4
Total Liabilities
11,451.4
57.0
60.8
64.3
67.4
71.4
256.3
2,207.1
465.1
427.3
10,743.7
546.4
2,144.3
661.5
217.0
9,209.3
655.0
2,590.1
682.6
193.8
9,539.7
854.1
2,879.4
651.8
151.3
9,927.9
1,240.9
3,354.4
599.4
119.0
10,758.9
391.0
3,204.8
1,123.6
(20.3)
4,699.1
366.8
3,006.7
1,054.2
(19.0)
4,408.7
363.3
3,007.0
1,053.8
(48.7)
4,375.4
363.3
3,007.0
694.7
(36.2)
4,028.9
363.3
3,007.0
511.3
(70.6)
3,811.1
363.3
3,146.9
(139.9)
(14.1)
3,356.3
16,150.5
15,152.4
13,584.7
13,568.6
13,739.0
14,115.2
0.22
0.2
0.1
243.7
19.4
1.22
9.11
2.82
210.5
19.3
1.11
5.11
1.47
236.8
19.3
0.96
5.83
3.74
260.5
20.5
0.72
Net Loss
Net Loss
320.6
22.7
2.24
2.03
2.03
1.86
1.67
148.0
5,725
2,989
7,765
(3,607)
Capital Stock
Capital Surplus
Retained Earnings
Capital Adjustments
Total Stockholders’ Equity
Total Liabilities and
Stockholders’ Equity
FINANCIAL RATIOS (%)
Interest Coverage Ratio (Times)
Return on Average Equity
Return on Average Assets
Debt-to-Equity Ratio
EBITDAR Margin
Fixed Charge Coverage Ratio
(Times)
PER SHARE DATA
Earnings per Share
(1) Korean Won figures are translated, solely for the convenience of readers into U.S. dollars at KRW 938.2: US$ 1.00, the prevailing rate as of December 31, 2007.
FINANCIAL SECTION
MANAGEMENT’S DISCUSSION & ANALYSIS
The following management’s discussion and analysis is based on the financial information and data that
have been classified in accordance with accounting principles generally accepted in Korea (Korean GAAP).
Amounts are presented in billions of Korean Won (KRW) except where stated otherwise. The term “the
Company” used hereinafter without any other qualifying description will refer to “Korean Air Lines Co.,
Ltd.” The following sections also contain forward-looking statements with respect to the financial condition, results of operations, and business of the Company and plans and objectives of the management of the
Company. Statements that are not historical facts, including statements about the Company’s beliefs and
expectations, are forward-looking statements. Such forward-looking statements involve known and
unknown risks, uncertainties, and other factors that may cause the actual results or performance of the
Company to be materially different from any future results or performance expressed or implied by such
forward-looking statements.
The Company does not make any representation or warranty, expressed or implied, as to the accuracy or
completeness of the information contained in this section, and nothing contained herein is, or shall be
relied upon as, a promise, whether as to the past or the future. Such forward-looking statements were based
on current plans, estimates, and projections of the Company and the political and economic environment
in which the Company will operate in the future, and therefore undue reliance should not be placed on
such statements.
Forward-looking statements only represent conditions as of the date they are made, and the Company
undertakes no obligation to update publicly any of them in light of new information or future events.
I. Executive Summary
1. Industry Summary
Taking the first quarter of 2007 as a turning point, Korea’s real GDP growth continued its upturn last year,
recording a 4.9% year-on-year growth over 2006. Despite the new government’s growth-oriented policy set at
a 6% increase for 2008, the actual growth is expected to be a little lowered to 4.8%, due to the expected slowdown of major economies stemming from the subprime mortgage crisis in the U.S. Exports took the lead in
the growth last year by recording a 14.1% increase, and domestic consumption also continued to demonstrate
a relatively brisk growth of 4.4%, boosted by the unprecedently bullish stock market. With the huge investments made in the semiconductor
equipment and ATM, facility investGDP Growth Rate
ments were very robust, increasing by
11.4% during the first half of 2007, to be
finally adjusted to a 7.5% increase yearon-year. While construction investments succeeded in escaping from a
two-year decline to record a 1.6%
increase, the upturn could only be seen
in the public and civil engineering sectors, with the housing sector continuing
its sluggish trend due to stringent regulations on real estate. Due to the struc*Source: National Statistical Office
tural weakeness in the manufacturing
KOREAN AIR ANNUAL REPORT 2007
048 · 049
sector and inactive hiring in the service sector, overall employment was as weak as the year before, hovering
below the level of 300,000 people hired last year. Exports recorded a strong increase of 14.1% to $372 billion
thru concentrating on the fast developing countries. According to the Ministry of Knowledge Economy, shipbuilding, general machinery and petroleum products respectively increased by 54.2%, 47.2% and 42.1%, while
automaking and semiconductor industries slowed down and decreased to 3.4% and -16.1%, respectively. By
region, ASEAN countries, the Middle East and Japan all increased by 50.9%, 48.3%, and 10.1% respectively,
but China and the U.S. weakened and decreased to 6.1% and -19.75% respectively, according to the National
Statistical Office.
Imports increased by 15.3% to $357 billion in 2007, mainly stemming from raw materials including crude oil.
Oil price hikes contributed to a continued increase in the imports of raw materials, and capital and consumer
goods imports also increased owing to the recovery in domestic demand.
According to IATA, international air passenger grew 7.4% last year, maintaining a continued growth over
5.9% recorded in 2006. The increase is mostly attributable to the strong economic growth of the Asian and
Middle East countries, wealth from soaring oil prices and the increased supply capacity. The operating income
and net profits of the world airline industry sharply increased by 60% and 124% to $16.3 billion and $ 5.6 billion respectively. In 2008, however, this growth trend is expected to slow down to approximately 5% due to
continuously soaring oil prices and growing credit crunch in the world’s major economies.
International air freight continued its relatively low growth trend last year, recording 4.3%. The trend of lower
growth since mid-2006 is continuing to record an annual 7~8% decrease. High oil prices along with fierce
competition from other modes of transportation are working as a constraint on the air freight market, particularly on the short haul routes. The Far East countries showed the highest growth rate in air freight of 10.1%.
Industry Net Profits
(In billions of US$)
Global
Regions
North America
Europe
Asia-Pacific
Middle East
Latin America
Africa
Korean Air
2008
15.3
8.4
5.8
0.8
0.3
-0.1
0.0
0.8
Operating Profits
2007
2006
16.3
10.2
9.3
6.1
0.7
0.4
-0.2
0.1
0.6
5.6
3.5
1.4
0.2
0.1
-0.5
0.5
2005
4.3
2008
5.0
Net Profits
2007
2006
5.6
-0.5
2005
-3.2
-0.3
3.0
1.5
0.4
0.1
-0.4
0.4
2.2
2.0
0.6
0.2
0.0
-0.1
0.3
2.7
2.1
0.7
0.2
-0.1
-0.1
0.01
-6.7
1.6
2.1
0.2
-0.1
-0.4
0.2
-3.7
1.8
1.7
0.1
0.1
-0.5
0.4
*Source: ICAO data to 2005. IATA forecasts 2006 - 2007. Korean Air data comes from the Company and Industry Reports by
Securities Companies.
FINANCIAL SECTION
MANAGEMENT’S DISCUSSION & ANALYSIS
While the Korean domestic passenger traffic decreased by 2.0% to 16,340,000 passengers, international passenger traffic soared 13.2% to 37,030,000 passengers last year, up 3.0% from the impressive growth of 10.2%
recorded in 2006. In particular, the routes to the Asian countries including China, Vietnam and Cambodia
maintained a continued growth. The growth in the number of international passengers mostly stems from the
introduction of the five-day workweek, appreciation of the Korean Won, and the surge in travels abroad by
Koreans as a result of the recovering economy.
Domestic Airlines Industries’ Historical Passenger Traffic
(In thousands of Passengers)
Domestic Passengers
Growth Rate
International Passengers
Growth Rate
2007
16,837
-2.0
36,861
12.7%
2006
17,181
0.1%
32,707
10.2%
2005
17,158
-9.2%
29,684
10.2%
*Source: The Ministry of Construction and Transportation
International air cargo traffic also recorded a two-digit growth of 10.0% year-on-year to 3,138,000 tons last
year. Most of the increase is judged to have come from the significant growth in the air cargo traffic to and
from China, which soared 29.0%, and in transit cargo passing through Korea, which recorded a 25% increase
over the previous year.
Domestic Airlines Industries’ Historical Cargo Traffic
(In thousands of Tons)
International Cargo
Growth Rate
2007
3,138
10%
2006
2,854
9.1%
2005
2,617
1.9%
*Source: The Ministry of Construction and Transportation
2. Korean Air’s Summary
of Operations
Korean Air’s 2007 Air Transportation Growth Rate
Passenger
Cargo
Available Seat Revenue Passenger Available Freight Ton Freight Ton
Kilometers (ASK) Kilometers (RPK) Kilometers (AFTK) Kilometers (FTK)
Industry Average*
6.2%
7.4%
5.3%
4.3%
Korean Air (Total)
6.0%
6.1%
11.4%
9.3%
Korean Air (Domestic)
-8.2%
-6.5%
-17.6%
-15.7%
Korean Air (International)
7.1%
7.1%
11.4%
9.3%
* Source: IATA International Traffic Statistics, January 29, 2008 and Korean Air / Industrial Reports
Despite the unprecedented oil price hikes, ever-widening fluctuations in the exchange rates due to the U.S.
subprime mortgage crisis and economic stagnation, Korean Air recorded an impressive growth of 9.9% in revenues last year, increasing by KRW 734.1 billion to KRW 8,812.0 billion, and operating income increased by
KRW 139.5 billion to KRW636.8 billion, recording a 28.0% growth over 2006. The strong growth in both rev-
KOREAN AIR ANNUAL REPORT 2007
050 · 051
enues and operating income is mainly attributable to the continuously aggressive cost management and
enhanced productivity efforts by the Company. Net income, however, decreased to KRW 10.7 billion, as the
payment of $3 hundred million, or KRW 278.7 billion, in fines concerning the U.S. Antitrust Laws was reflected to the 2nd quarter results, and the profits from the foreign currency translation decreased by KRW 400.6
billion due to the weakening of the Korean Won at the end of December of 2007.
Total assets grew 11.5% in 2007 to KRW 15,152.4 billion from 13,584.7 billion, and liabilities also increased to
KRW10,743.7 billion from 9,209.3 billion, marking a 16.7% increase over 2006. Most of the the increase in liabilities is attributable to KRW 1,534.4 billion in the newly issued bonds and loans. Total shareholders’ equity
slightly increased by KRW 33.3 billion to stand at KRW 4,408.7 billion in 2007.
Having overcome daunting obstacles to growth in 2007, Korean Air is once again set for another challenging
yet successful year in 2008. In order to realize the goal, the Company will continue to develop new profitable
global routes, and maximize customer satisfaction with enhanced services and advanced high-tech facilities to
meet the growing customer demands. Korean Air will concentrate on greater effectiveness and efficiency, with
more focus placed on fostering talented human resources. Korean Air is committed to achieving success
through its people, advanced systems, extensive network and operational excellence.
II. Results of Operations Despite challenges at home and abroad in 2007, Korean Air was able to achieve impressive results last year
1. Overview
through “Excellence in Management.” It was made possible by firmly establishing itself as a leader in Asia
through focusing on customer-oriented management as well as securing a new growth platform with its
increasingly expanding network in China. Korean Air’s leadership in the aviation industry was evidenced in
2007 by a number of prestigious awards including the Mercury Award the Company received for the 3rd time.
By continuously opening new markets and making aggressive investments, Korean Air was able to attain a
substantial growth in 2007, and established a growth platform for 2008 and onward.
Operating revenues substantially rose by KRW 734.1 billion to KRW 8,812.0 billion from KRW 8,077.9 billion
in 2006, largely owing to impressively increased international passengers, which rose by KRW 486.8 billion
(11.7%), and the robust cargo business income, which grew by KRW 162.1 billion (6.84%). The strong performance was more than enough to cover the decrease in the domestic sector. The growth in the operating
revenues in international passenger business was attributable to the increased demand stemming from the
strengthened capacity, increased demand for premium cabin classes, and increased fares.
Gross profit rose by KRW 249.3 billion to KRW 2,022.7 billion, while operating income increased by 28% in
2007 to KRW 636.8 billion, resulting from increased operating revenues from the international passenger
business, and stable but effective cost management across all business areas of the Company. Despite numerous challenges in the world airline industry, Korean Air was able to achieve a strong performance in 2007 by
expanding its global network, upgrading the fleet, and further strengthening customer satisfaction. Income
before Tax drastically decreased by KRW 395.6 billion mainly due to the loss on foreign currency exchanges.
As a result, net income decreased last year to KRW 10.7 billion from KRW 383.0 billion in 2006.
FINANCIAL SECTION
MANAGEMENT’S DISCUSSION & ANALYSIS
Operating Revenues
Revenue Breakdown by Business
(In billions of KRW)
Domestic Passenger
International Passenger
Cargo
Aerospace
Catering
Hotel/Limousine
Others
585.5
4,631.6
2,533.0
235.1
58.4
35.2
733.2
2007
Composition
6.6%
52.6%
28.7%
2.7%
0.7%
0.4%
8.3%
2006
2005
2004
2003
612.2
4,144.8
2,370.8
211.6
51.3
36.5
650.6
618.5
3,732.5
2,321.7
187.9
49.4
34.6
639.6
634.2
3,372.7
2,327.4
201.3
41.7
36.6
597.0
704.6
2,765.5
1,924.1
186.1
37.2
65.8
493.9
By the end of 2007, Korean Air increased its fleet to 126 aircraft from 121 aircraft in 2006, enabling the airline to
increase supply to meet demand from the expanded route network. With the expanded fleet, Korean Air operated regular flights to 14 Korean cities, and 101 cities in 36 countries. Korean Air transported a total of 22,830 thousand passengers and over 2,280 thousand tons of freight last year.
Load factors (L/F) and passenger yield for 2007 for domestic passenger routes were 70.2% and 17.7 cents/km,
respectively, while L/F and passenger yield for international flights were 72.8% and 8.9 cents/km, respectively. On
domestic routes, the L/F and passenger yield increased by 1.3%p and 6%, respectively, while international routes
showed a slight decrease of 0.1%p and an
Revenue Breakdown by Business
increase of 8%, respectively. As of the
end of 2007, the operating revenue
breakdown is as follows: Domestic
Passenger - 6.6%, International
Passenger - 52.6%, Cargo - 28.7%, and
Others (including. Aerospace, Catering,
Hotel, Limousine, Inflight sales and
ancillary) - 12.1%. As for the revenue
composition by route, the Americas and
Europe routes all increased by 1%p,
while domestic routes stood at 11%,
marking a 2%p decrease.
KOREAN AIR ANNUAL REPORT 2007
052 · 053
Revenue Breakdown by Routes
<Passenger>
Domestic
Japan
China*
Southeast Asia
Oceania
North America
Europe / Middle East Asia
Total
(%)
2007
11.2
12.9
10.1
13.0
6.4
29.7
16.7
100.0
2006
12.9
13.4
9.3
12.5
6.4
29.3
16.2
100.0
2005
15.1
14.1
9.6
10.7
6.5
29.1
14.8
100.0
2004
17.0
14.6
6.8
12.6
6.6
28.4
14.0
100.0
2003
21.6
13.2
5.5
12.1
7.7
26.9
12.9
100.0
* Passengers on the China route witnessed a significant jump, whereas Southeast Asian routes recorded a decrease in passengers in
2005, mainly due to Hong Kong being classified as China from 2005.
<Cargo>
Domestic
Japan
China*
Southeast Asia
Oceania
North America
Europe / Middle East Asia
Total
(%)
2007
1.0
4.1
8.3
14.0
2.4
41.8
28.4
100.0
2006
1.2
4.7
7.5
16.7
1.3
42.7
25.8
100.0
2005
1.4
5.6
11.8
12.0
1.1
38.1
30.0
100.0
2004
1.5
5.3
4.9
17.9
1.3
41.6
27.6
100.0
2003
1.8
5.3
3.8
19.7
1.8
43.1
24.6
100.0
* Hong Kong is classified as China from 2005.
2. Operating Results
by Segment
Domestic Passenger
Operating revenues in the domestic passenger business tallied at KRW 585.5 billion, a 4.4% decrease. The
decline can be attributed to the decline in overall domestic passengers due to other modes of transportation.
More emphasis was placed on domestic-international connections for the potential increases in tourism.
International Passenger
As for the international passenger business in 2007, the passenger traffic(RPK : Revenue Passenger Kilometer)
rose 7.4%, while its operating income substatially increased by 11.7 to KRW 4,631.6 billion, decisively contributing to the overall increase in operating revenues. The increase was boosted by the five-day workweek,
appreciation of the Korean Won, and the increased fares. In 2007, Korean Air launched regular flight service to
the new destinations like Madrid, Vienna, Cebu, Zhengzhou, Melbourne, Chiang Mai, and between BusanManila.
Operating revenues for the international passenger business increased to KRW4,631.6 billion from KRW
4,144.8 billion, maintaining a strong growth of 11.7% over the previous year. The international passenger
business comprised 52.6% of the total corporate operating revenues, up 1.3%p from 51.3% in 2006.
FINANCIAL SECTION
MANAGEMENT’S DISCUSSION & ANALYSIS
Cargo
With the help of the recovery in the global IT industry and increased cargo supply, Korean Air’s cargo business
marked a 6.8% increase in revenues to KRW2,533.0 billion in 2007 from KRW 2,370.8 billion in 2006.
According to the IATA statistics released in June 2007, Korean Air continued to retain the number one position in terms of Scheduled International Freight Ton Kilometers (FTK) for the fourth consecutive year.
In 2007, Korean Air expanded its cargo capacity by converting three existing passenger aircraft into cargo
freighters and strengthened its foothold in the Chinese cargo market by establishing a joint company to set up
a cargo terminal at Tianjin Airport. The Company continued to post a substantial growth in revenues of 6.8%
over the previous year, largely boosted by the new freighter service to Houston, Munich, Chengdu, Xiamen
and Moscow, improved cargo load factors on the Americas and Europe routes, and increased fares. Korean
Air is confident that it will be able to further expand the cargo business and maximize profitability in 2008 by:
the full-scale operations of Grand Star, the cargo carrier jointly established with Sinotrans in China, the opening of new markets in South America and Africa, the reorganizing of its network along with the revising of its
schedules, and the expansion of the cargo handling capacity at the Incheon Airport’s cargo terminal.
Other Businesses
Revenues from other businesses, including Aerospace, Catering, Inflight Sales, Hotel and Limousine comprised 12.1% of total revenues. Aerospace revenues increased by 11.1% to KRW 235.1 billion, mainly due to
the substantial growth in the commercial aircraft business, which rose to KRW 176.0 billion from KRW 126.0
billion. By enhancing productivity and efficiencies, the catering business increased its revenues by 13.8% to
KRW58.4 billion. The hotel & limousine business slightly decreased to record revenues of KRW 35.2 billion.
3. Operating Income
In 2007, Korean Air achieved growth in operating income of 28% to KRW 636.8 billion from KRW 497.4 billion the previous year. Despite the increase in the jet fuel expenses of approximately 10% in 2007, Korean Air
was able to effectively contain overall costs to stand at a 7.7% increase, helping achieve a substantial growth in
operating income.
4. Operating Expenses
Operating Expenses
(In billions of KRW)
Jet Fuel*
Maintenance
Labor
Ground Handling
Landing Fee
Rental
Depreciation
Insurance
Others
Total
2007
Composition
2,606.4
38.4%
313.2
4.6%
1,079.4
15.9%
293.8
4.3%
229.0
3.4%
366.6
5.4%
706.9
10.4%
31.4
0.5%
1,162.6
17.1%
6,789.3
100.0%
2006
2005
2004
2003
2,371.0
230.4
1,010.1
278.1
213.2
389.8
675.5
45.7
1,090.7
6,304.5
2,022.3
289.3
949.8
262.5
202.3
357.6
676.5
61.5
1,070.1
5,891.9
1,588.2
247.0
792.3
265.8
201.0
433.0
654.9
86.7
1,273.0
5,541.9
1,096.9
262.9
724.0
237.1
178.9
442.7
638.3
87.6
1,095.3
4,763.7
* Although depreciation, rental fees and labor costs are regarded as fixed costs in the airline industry, jet fuel costs should also be
included as operating expenses since the amount of jet fuel consumed is pre-determined based on flight schedules.
KOREAN AIR ANNUAL REPORT 2007
054 · 055
Operating expenses increased by 7.7% to KRW 6,789.3 billion from KRW 6,304.5 billion in 2006 due to jet
fuel price increases and growth in consumption. Jet fuel costs in KRW increased by 10% to KRW 2,606.4 billion from KRW 2,370.9 billion in 2006. As for others than jet fuel, which comprised 38.4% of total operating
expenses in 2007, labor and depreciation increased by 6.2% and 4.7%, respectively, while advertising expenses
and service fees all showed a substantial increase of 45.2% and 25.9%, respectively.
Jet Fuel
The two main determinants of the
cost of jet fuel for airlines are the global oil price trend and foreign
exchanges. These two determinants
significantly affected jet fuel expenses
for Korean Air. Unit price for jet fuel
increased to $90.8 a barrel from $85.9
in 2006 and fuel consumption
increased by 7.6% to 31.0 million barrels from 28.8 million barrels in 2006.
But the appreciation of the Korean
Won could offset part of the increase
in the jet fuel expenses.
Jet Fuel Consumption
(Millions Gallons)
Maintenance
The enhanced heavy maintenance of aircraft engines during the first half of 2007 boosted maintenance
expenses by 35.9% to KRW 313.2 billion. However, the increase in the maintenance expenses contributed to
overall safety in aircraft operations and customer satisfaction, resulting in the heightened revenues last year.
Labor
Labor costs increased to KRW 1,079.4 billion from KRW 1,010.1 billion, posting a 6.9% increase over 2006,
when there was a similar increase of 6.3% over the year before. The increase mostly resulted from increased
wages, reflecting the Company’s continuous focus on enhancing the quality of the people at Korean Air, and
its competitiveness in a fluctuating domestic and global economic environment. Constituting 15.9% of total
operating expenses, people are essential resources to the success of Korean Air .
Employees
(Persons)
General Administration
Pilots / Flight Attendants
Technicians
Others
Total
2007
4,315
5,034
5,174
367
14,890
2006
4,190
5,005
5,193
367
14,755
2005
4,203
5,143
5,386
304
15,036
2004
3,963
5,281
5,386
364
14,994
2003
3,946
5,471
5,373
404
15,194
FINANCIAL SECTION
MANAGEMENT’S DISCUSSION & ANALYSIS
Ground Handling/Landing Fee
Ground handling costs and landing fees recorded 5.6% and 7.4% increases, respectively, in 2007, to KRW
293.8 billion and KRW 229.0 billion. Both fees increased due to the increase in the number of flights last year.
From 2008, however, a certain amount of these fees is expected to decrease due to the proposed lowering of
10% of the landing fees and 20% of the facilities rents at Incheon International Airport over the next three
years.
Rental
Rental costs declined by 6.0% to KRW 366.6 billion in 2007 from KRW 389.8 billion in 2006 due to the
decrease in the number of the leased aircraft.
Depreciation
Depreciation increased by 4.6% to KRW 706.9 billion from KRW 675.5 billion in 2006, mainly due to the adjusted depreciation cost of aircraft parts and equipment and the increase in the number of owned and financially
leased aircraft from 96 to 100 in 2007 .
Fleet by Type
Passenger
Cargo
Total
Type
B747-200/300
B747-400
B777-200/300
A330-200/300
A300-600
B737-800/900
F-100
Sub-total
B747-400F
B747-200/300F
A300-600RSF
MD-11F
Sub-total
2007
0
24
20
19
8
32
0
103
21
0
2
0
23
126
2006
0
26
16
19
9
31
0
101
19
0
1
0
20
121
2005
0
24
15
19
10
29
0
97
16
3
0
0
19
116
2004
1
24
13
19
10
29
0
96
15
3
0
3
21
117
2003
1
24
13
19
10
25
4
96
12
5
0
4
21
117
Insurance
Insurance maintained its declining trend, mainly due to the continued accident-free safety record, which has
and will continue to be the basis of Korean Air’s overall business strategy. Insurance expenses decreased by
31.3% to KRW 31.4 billion in 2007 from KRW45.7 billion in 2006.
KOREAN AIR ANNUAL REPORT 2007
5. Selling, general and
administrative
expenses
056 · 057
Selling, General & Administrative (SG&A) expenses also increased to KRW1,385.8 billion from KRW 1,276.0 billion, posting an 8.6 % increase, which is 0.5%p lower than the increase in operating revenues of 9.1% in 2007.
Selling, General and Administrative Expenses
(In billions of KRW)
2007
1,386
6. Non-Operating
Income / Expenses
2006
1,276.0
2005
1,259.8
2004
1,284.9
2003
1,102.1
Non-operating income decreased by 50.1% last year to KRW 338.0 billion from KRW 676.9 billion in 2006, when
the Company had significant foreign currency translation gains. On the other hand, non-operating expenses
increased by 28.6% to KRW 882.5 billion, as the fines imposed by the U.S. Antitrust Laws were disposed of as miscellaneous losses. These factors resulted in a sharp decline in income before tax to KRW 92.3 billion from KRW
487.9 billion in 2006, marking an 81.1% decrease, which is in sharp contrast to the 92.8% increase seen in 2006.
Net income also decreased by 97.2% in 2007.
Non-operating Income/Expenses
(In billions of KRW)
Non-operating Income
Interest Income
Dividend Income
Gain on Foreign Currency Transaction
Gain on Foreign Currency Translation
Gain on Disposal of Property, Plant and Equipment
Gain on Equity-method
Others
2007
338.0
28.2
2.4
67.2
28.6
116.6
74.4
20.6
2006
676.9
29.3
5.2
80.9
429.2
26.3
81.4
24.6
Foreign currency translation gains were significantly reduced to KRW 28.6 billion from KRW 429.2 billion, a
93.3% decrease due to depreciation in the Korean Won, and foreign currency transaction gains also decreased
by 16.9% to KRW 67.2 billion from KRW 80.9 billion. This significantly reduced non-operating income.
Non-operating Expenses
Interest Expenses
Loss on Foreign Currency Transactions
Loss on Foreign Currency Translation
Loss on Disposal of Property, Plant and Equipment
Loss on Equity-method
Loss on Valuation of Interest Rate Swaps
Others
Income Before Tax
2007
882.5
425.1
23.3
87.8
29.1
4.3
0
312.9
92.3
2006
686.4
407.5
22.3
79.8
41.8
7.5
2.1
132.9
487.9
FINANCIAL SECTION
MANAGEMENT’S DISCUSSION & ANALYSIS
Compared to the increase in gains on disposition of tangible assets by KRW 90.3 billion, the decrease in gains
on foreign currency translation by KRW 400.6 billion had greater impact on the decrease in non-operating
income. In non-operatng expenses, miscellaneous losses that increased by KRW 264.8 billion had greater
influence over the increase in the expenses than the losses on the transactions of the derivative products and
the losses on the reduction of tangible assets, which decreased by KRW 26.0 billion and KRW 58.2 billion,
respectively.
The loss on equity method decreased by 43% to KRW 4.3 billion, but considering the amount, it was not able
to significantly affect the non-operating expenses.
As a result of decreases in ordinary income, net income significantly decreased by 97.2% to KRW 10.7 billion
from KRW 383.0 billion in 2006 in spite of the 28% increase in operating income.
Net Income
Income Before Tax
Extraordinary Income
Income Tax Expense
Net Income
7. Financial Ratios
2007
2006
92.3
81.6
10.7
487.9
104.9
383.0
Financial Ratios
(%)
Debt-to-Equity Ratio
EBITDAR Margin
PBR
2007
243.7
19.4
117.5
As a result of increases in current liabilities by 21.8% and in non-current liabilities by 14.2%, liabilities increased by
16.7% last year to KRW 10,743.7 billion. The increase in current liabilities
mostly stems from the current portion
of long-term debts, which increased by
KRW 337.1 billion, and short-term
debts, which increased by 43.4% to
KRW 530.0 billion. The increase in
non-current liabilities is mainly attributable to long-term debts, which
soared by KRW 508.5 billion, and bond
discount, which increased by KRW
389.5 billion. The total debt-to-equity
ratio increased to 243.7% last year from
210.5% in 2006.
2006
210.5
19.3
54.2
Debt-to-Equity Ratio
2005
236.8
19.3
52.9
2004
260.5
20.5
33.1
2003
320.6
22.7
36.8
(%)
KOREAN AIR ANNUAL REPORT 2007
058 · 059
The EBITDAR margin stood at 19.4% in 2007, and the fixed charge coverage ratio at 2.2, while PBR significantly rose 62.7%p to 117.5% from 52.9% of the previous year.
8. Debt Structure and
Hedging Strategy
Debt by Currency Type
Currency
USD
KRW
JPY
Total
Portion
57.1%
38.1%
4.8%
100%
Floating vs. Fixed
64.1% : 35.9%
4.9% : 95.1%
37.5% : 62.5%
58.3% : 41.7%
The biggest debt currency portion at the end of 2007 was the US Dollar, mainly because of aircraft financing.
Historically, Korean Air has held a long position in Korean Won and Japanese Yen while holding a short position
in US Dollars. At the end of 2007, total foreign currency debts (deducting foreign currency assets) were US$5.16
billion, and US$ 440 million in Japanese Yen, totaling KRW 5,254.9 billion (61.6% of total liabilities). Every year,
foreign debt has a significant impact on non-operating items due to either gains or losses from foreign currency
translation. During 2007, our foreign currency debt balance resulted in negative earnings with the weak Korean
Won versus the US Dollar.
III. Financial Condition
1. Assets
Assets
(In billions of KRW)
Current Assets
Cash & Short-term Financial Instruments
Trade Receivables
Inventories
Other Current Assets
Non-current Assets
Investment Assets
Property, Plant & Equipment, net of Accumulated Depreciation
Intangible Assets, net of Accumulated Amortization
Other Non-current Assets
Total Assets
2007
1,982
704.8
694.6
279.2
303.4
13,170.5
1,664.6
10,869.7
232.1
404.1
15,152.4
2006
1,474.1
468.9
602.6
220.8
181.8
12,110.6
705.4
10,749.8
196.8
458.7
13,584.7
Change (%)
34.5%
50.3%
15.3%
26.4%
66.9%
8.6%
136.0%
1.1%
18.0%
-11.9%
11.5%
Total assets increased by 11.5% in 2007 to KRW 15,152.4 billion from KRW13,584.7 billion in 2006. Asset
turnover slightly decreased from 0.59x in 2006 to 0.58x in 2007. Current assets rose to KRW1,982.0 billion, a
34% increase from KRW1,474.1 billion in 2006. Cash & short-term financial instruments substantially
increased to KRW 704.8 billion from KRW 468.9 billion, a 50.3% increase, and trade receivables also increased
by 15.3% to KRW 694.6 billion. Inventories increased by 26.4% to KRW 279.2 billion from KRW 220.8 billion
in 2006 due to the increase in merchandise, work-in process and supplies in relation to the expansion in routes
and aircraft.
FINANCIAL SECTION
MANAGEMENT’S DISCUSSION & ANALYSIS
Non-current assets rose 8.8% to KRW 13,170.5 billion in 2007 from KRW 12,110.6 billion in 2006.
Investments increased by KRW 959.2 billion from KRW 705.4 billion in 2006 to KRW 1,664.6 billion in 2007,
while aircraft assets amounted to KRW 8,761.9 billion.
2. Liabilities
Liabilities
Total liabilities grew 16.7% to KRW 10,743.7 billion from KRW 9,209.3 billion in 2006. Long-term obligations under installment purchases decreased by 53.1%, realizing a reduction of KRW 290 billion, but the
increases in short-term debts and long-term debts, which rose 43.4% and 386.6% to stand at KRW 529.9 billion and KRW 640.1 billion, respectively, contributed to overall increases in total liabilities.
Current liabilities grew to KRW 3,647.4 billion, showing an increase of 21.8% from KRW 2,994.9 billion in
2006. Current portion of long-term debts and advances received rose by KRW 337.1 billion (32.7%) and
KRW 109.8 billion (29%) to KRW 1,368.5 billion and KRW 485.4 billion, respectively. Trade payables and
income taxes payable fell 14.6% and 42.9% to KRW 195.7 billion and KRW 24.3 billion, respectively.
Non-current liabilities grew 14.2% to KRW 7,095.9 billion, and long-term debt also increased by KRW 508.5
billion to raise total liabilities.
3. Shareholders’ Equity
Shareholders’ Equity
(In billions of KRW)
Capital Stock
Capital Surplus
Retained Earnings
Capital Adjustment
Total Shareholders’ Equity
2007
366.8
3,006.7
1,054.2
(19.0)
4,408.7
2006
363.3
3,007.0
1,053.8
(48.7)
4,375.4
The capital stock, capital surplus and retained earnings all remained at the same level as that of the previous
year, while voluntary reserves of KRW 350.0 billion laid aside from unappropriated earned surplus of retained
earnings helped boost voluntary reserves by 61.4% to KRW 919.7 billion. Capital adjustments also remained
at the same level of KRW 65.4 billion as that of the previous year. As a result, total stockholders’ equity grew
0.8% to KRW 4,408.7 billion in 2007 from KRW 4,375.4 billion in 2006.
4. Cash Flows: Operating,
Investing, Financing
Activities
Cash Flows
(In billions of KRW)
Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
Increase (Decrease) in Cash
Cash and Cash Equivalents at Year-end
2007
672.9
(1,687.8)
1,249.6
234.8
688.5
2006
1,014.5
(970.5)
(167.8)
(123.8)
453.7
KOREAN AIR ANNUAL REPORT 2007
060 · 061
With KRW 672.9 billion in cash inflows from operating activities, KRW 1,687.8 billion in cash outflows for
investing activities, and KRW 1,249.6 billion in cash inflows from financing activities, cash flows in 2007
increased by KRW 234.8 billion. While cash inflows from operating activities fell 33.7% (KRW 341.6 billion), cash inflows from financing activities increased by KRW 1,417.4 billion in the form of loans and
bonds as cash outflows increased by investing activities to KRW 1,687.8 billion (up 73.9%).
As non-cash items decreased by KRW 45.7 billion (down 4.0%) to KRW 1,092.2 billion, inflows from noncash income considerably fell 60.5% to KRW 219.4 billion, net income also significantly decreased by
97.2% to KRW 10.7 billion and cash flows from operating activities decreased by KRW 341.6 billion to
KRW 672.9 billion. This drop stems from the significant decreases in gains on foreign currency translation
that fell 93.3% to KRW 28.6 billion in 2007 from KRW 429.2 billion in 2006.
Net cash outflows from investing activities notably increased by 73.9% to KRW 1,687.8 billion from KRW
970.5 billion in 2006. Cash inflows from investing activities increased by KRW 161.8 billion (58.4%) to
KRW 438.9 billion, while cash outflows for investing activities rose by KRW 879.2 billion, resulting in a
sharp increase in net cash outflows. This increase is largely attributable to the acquisition of stocks through
investments in Hanjin Energy, whose value rose by KRW 866.8 billion over the previous year.
Cash inflows from financing activities grew by KRW 2,146.3 billion (137.1%) to KRW 3,172.3 billion and
this increase was respectively evidenced in the increases in short-term borrowings that rose by KRW 449.6
billion (up 184.3%), bond offerings that increased by KRW 398.2 billion (59.2%), and the Won currency
long-term borrowings which jumped by KRW512.3 billion (1,745.5%). Cash outflows only stood at witnessing an increase in the repayment of short-term borrowings, which rose by KRW 344.5 billion (179.1%),
enabling cash flows from financing activities to result in net inflows of KRW 1,249.6 billion in 2007, marking a solid turnaround from the net outflows of KRW 167.8 billion in 2006.
Making the most of the cash inflows from operating activities and borrowings, Korean Air conducted brisk
investment activities in 2007 to help establish a firm foothold for future growth, and these activities led to
an increase in the debt-to-equity-ratio, which rose to 243.7% from 210.5% in 2006. Korean Air’s cash holdings grew by KRW 234.8 billion to stand at KRW 688.5 billion as of the end of fiscal 2007.
FINANCIAL SECTION
MANAGEMENT’S DISCUSSION & ANALYSIS
IV. Outlook for 2008
Despite the new government’s pledge to achieve a 6 percent growth target and create 350,000 new jobs, current economic situations including the slowdown of the world economy and soaring oil prices are likely to act
as a constraint on our optimistic view, bringing down the actual outlook to a 4 percent growth and about
300,000 jobs at best. Domestic consumption is expected to show a stable growth thanks to the increased disposable income stemming from the improvement of employment in quantity and quality, and, buoyed by the
companies’ efforts to improve profitability, facility investments are also estimated to make a robust 7 percent
growth. Overcoming the weakening of the US dollars and the sluggish major economies, exports will be able
to continue to retain a double-digit growth, and the price hikes in crude oil and raw materials along with the
recovering domestic demand will prompt imports to continuously increase.
However, the uncertainties in the financial markets triggered by the US subprime mortgage crisis are expected
to linger on throughout the year, with the downturn of the US economy affecting the overall world economy.
The soaring oil and raw material prices are still poised to deliver a severe blow to the global economy running
into a state of recession. Mainly due to the stagnant real estate and employment markets, the prospect of the
US economy for the year looks as instable as the previous year to stand at a 2 percent growth, and the
European economy also appears to slow down to about 2 percent. Amidst growing concerns over the prices
that jumped since late 2007 and the additional belt-tightening measures by the government, the Chinese economy is expected to retain a 10 percent growth level owing to the upcoming Beijing Olympics and the steadily
growing exports. Japan is also looking to a rosy year as it sees its economy will be able to benefit from the
exports to the fast-growing economies in Asia while recovering its domestic demand.
Oil prices keep rising to fresh records due to a structural unbalance between supply and demand, and this is
mostly due to the high price policy of the crude oil producing countries, instabilities in the world’s financial
markets, political unrest in the Middle East, and the ever-growing demand for crude oil by the fast-growing
emerging economies. Driven by the surging demand by the developing nations and the OPEC’s high price
policy, high oil prices are estimated to be maintained throughout the year.
IATA estimates that, taking 2007 as a turning point, the profits of the world airline industry will be weakened
by such stumbling blocks as the slowing down of the world economy caused by the US economic recession
and soaring oil prices. Compared to the 7.4 percent growth recorded in 2007, a weakened 5.1 percent annual
growth is forecast for the years to 2011. A lower growth of 4.8 percent is proposed for air cargo business.
Although unfavorable situations still lie ahead including high oil prices and the unstable Korean Won caused
by the uncertainties in the financial market, Korean Air is gearing itself up for another promising year in 2008
in which to establish a firm platform for future growth. Along with the new government’s growth drive policy,
major factors ranging from the launching of its low-cost carrier to the Beijing Olympic Games all point to the
opportunities Korean Air looks to take for a substantial growth in the year. The brisk economies of China and
India and the proposed visa exemption accord with the U.S. are expected to add to those opportunities,
enabling a substantial growth in the international passenger business. Together with the proposed deregulation efforts by the government, the strong will of the Company’s management to tap into Central Asia and the
corporate policy to make the Chinese market an advance base for future growth will result in a stable yet
strengthened competitiveness of the Company. The full-scale operations of Grandstar, the cargo airline the
Company established with Sinotrans, China’s largest logistics company, will help allow the airline to strengthen and retain a power position in the China cargo market. Our cargo business will also be able to see the
KOREAN AIR ANNUAL REPORT 2007
062 · 063
demand greatly boosted once the FTA agreement with the US comes into effect, another FTA agreement is
settled with EU, and the 2nd phase of the Incheon Airport expansion plan is completed within the year. While
competing with other modes of transportation including the KTX, the Company’s domestic passenger business will be more strengthened by Air Korea, the low-cost airline which the Company set up and will go into
service this year, and continued efforts on the automated and high-tech systems in its service categories. The
extended applications of the fuel surcharge on fares are expected to help offset part of the hikes in the oil prices
and the reductions for the next three years in the landing fees at Incheon Airport will also contribute to the
profitability of the Company.
Efficiencies and effectiveness have always been Korean Air’s self-imposed ideals in opening up the future and
making the most of its potentials against all the uncertainties from the world’s social and political instabilities
to the ever-changing financial volatilities including the interest and exchange rates and oil price hikes.
Through continued investment activities and cooperation with the world’s major partners, Korean Air has
been strenuously making efforts to develop new profitable markets to establish a firm and strong foothold for
future growth. All these efforts testify to the Company’s will to deliver the utmost satisfaction to its passengers,
customers and shareholders. Profitability and financial soundness will always be the core and critical targets in
all the management activities. Strict compliance with the safety rules and regulations has been and will be the
most essential elements in educating and training the employees. Korean Air fully recognizes social contributions and environmental awareness are the two factors that will promote the Company’s position as a socially
responsible company. All of these endeavors are well manifested in Korean Air’s ultimate goal of being the
Respected Leader in the world airline industry that provide “Excellence in Flight.”
FINANCIAL SECTION
INDEPENDENT AUDITORS’ REPORT
ERNST & YOUNG HAN YOUNG
Taeyoung Bldg., 3F~8F
10-2, Yeoido-dong, Youngdeungpo-gu
Seoul 150-777 Korea
Phone : 3787-6600
Fax
: 783-5890
The Board of Directors and Stockholders
Korean Air Lines Co., Ltd.
We have audited the accompanying balance sheet of Korean Air Lines Co., Ltd. (the “Company”) as of December 31, 2007 and 2006,
and the related statements of income, appropriations of retained earnings and cash flows for the year then ended, and the related statements of changes in equity for the year ended December 31, 2007, all express in Korean won. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above express in Korean won present fairly, in all material respects, the financial
position of Korean Air Lines Co., Ltd. as of December 31, 2007 and 2006, and the results of its operations, its changes in retained earnings and its cash flows for the years then ended, and its changes in equity for the year ended December 31, 2007, in conformity with
accounting principles generally accepted in the Republic of Korea.
We have also reviewed the translation of the 2007 financial statements mentioned above into United States dollar amounts on the basis
described in Note 2 to the accompanying the financial statements. In our opinion, such statements have been properly translated on
such basis.
Accounting principles and auditing standards and their application in practice vary among countries. The accompanying financial
statements are not intended to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in countries other than the Republic of Korea. In addition, the procedures and practices utilized in
the Republic of Korea to audit such financial statements may differ from those generally accepted and applied in other countries.
Accordingly, this report and the accompanying financial statements are for use by those who are knowledgeable about Korean accounting principles and auditing standards and their application in practice.
February 27, 2008
This audit report is effective as of February 27, 2008, the auditors’ report date. Accordingly, certain material subsequent events or circumstances may have occurred during the period from the auditors’ report date to the time this audit report is used. Such events and
circumstances could significantly affect the accompanying financial statements and may result in modifications to this report.
KOREAN AIR ANNUAL REPORT 2007
064 · 065
BALANCE SHEETS
Korean won in millions
2006
As of December 31, 2006 and 2007
ASSETS
Current assets:
Cash and cash equivalents (Note 3)
Short-term financial instruments (Note 3)
Short-term investment securities (Note 4)
Trade accounts and notes receivable, less allowance for doubtful
accounts of ￦7,017 million as of December 31, 2007
(￦6,087 million as of December 31, 2006) (Note 21)
Other accounts receivable, less allowance for doubtful
accounts of ￦166 million as of December 31, 2007
(￦210 million as of December 31, 2006)
Inventories, net of valuation allowance (Note 5)
Advance payments
Prepaid expenses
Accrued income, less allowance for doubtful accounts of
￦799 million as of December 31, 2007
(￦389 million as of December 31, 2006)
Short-term derivative instrument assets (Note 13)
Current portion of deferred income tax assets (Note 17)
Total current assets
Non-current assets:
Long-term financial instruments (Note 3)
Long-term investment securities (Notes 6 and 14)
Equity method investments (Notes 7 and 14)
Long-term loans, less allowance for doubtful accounts of
￦767 million as of December 31, 2007
(￦1,064 million as of December 31, 2006)
Guarantee deposits (Note 21)
Deferred income tax assets (Note 17)
Long-term derivative instrument assets (Note 13)
Property, aircraft and equipment, net (Notes 8, 13, 14 and 23)
Intangible assets, net (Notes 9, 14 and 23)
Other assets
Total non-current assets
Total assets
(Continued)
See accompanying notes.
￦
453,663
15,209
3,625
U. S. dollars in thousands
(Note 2)
2007
￦
688,476
16,280
268
2007
US$
733,826
17,352
286
602,626
694,641
740,398
35,296
220,805
32,490
60,312
27,558
279,184
106,084
74,279
29,373
297,574
113,072
79,172
42,091
7,962
1,474,079
83,415
10,737
1,031
1,981,953
88,910
11,444
1,099
2,112,506
16
80,963
624,395
14
99,592
1,564,986
15
106,152
1,668,073
110,378
80,679
85,993
163,860
125,792
3,864
10,869,686
232,113
29,892
13,170,478
￦ 15,152,431
174,654
134,078
4,119
11,585,681
247,402
31,861
14,038,028
US$ 16,150,534
128,838
172,482
8,669
10,749,825
196,756
38,304
12,110,626
￦ 13,584,705
FINANCIAL SECTION
BALANCE SHEETS (CONTINUED)
Korean won in millions
2006
As of December 31, 2006 and 2007
U. S. dollars in thousands
(Note 2)
2007
2007
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts and notes payable (Note 21)
Short-term borrowings (Notes 11 and 14)
Other accounts payable
Advance receipts from customers
Withholdings
Accrued expenses
Income taxes payable
Current portion of long-term liabilities, net of discount on
bonds and present value discount (Notes 12, 13 and 14)
Current portion of obligations under capital leases
(Notes 12, 13, 14 and 21)
Short-term derivative instrument liabilities (Note 13)
Current portion of deferred income tax liabilities (Note 17)
Other current liabilities
Total current liabilities
Non-current liabilities:
Bonds, net of discount on bonds (Notes 12 and 14)
Long-term loans (Notes 12, 14 and 21)
Long-term obligations under installment purchases, net of
present value discount (Notes 12 ,14 and 21)
Obligations under capital leases
(Notes 12, 13, 14 and 21)
Guaranteed loans, net of present value discount (Notes 12 and 14)
Asset-backed securitization loans (Note 12)
Long-term withholdings
Long-term non-trade payable
Severance and retirement benefits (Note 15)
Unredeemed mileage liabilities
Total non-current liabilities
Total liabilities
Commitment and contingercies (Note 12 and 13)
(Continued)
See accompanying notes.
￦
229,043
369,547
36,226
375,673
82,015
462,382
42,508
￦
195,706
529,882
73,709
485,441
89,541
473,934
24,273
US$
208,597
564,786
78,564
517,417
95,439
505,152
25,872
1,031,363
362,155
1,368,464
406,418
1,458,606
433,189
3,767
27
227
2,994,933
1
377
3,647,746
1
402
3,888,025
1,470,608
1,100,519
1,860,127
1,691,851
1,982,655
1,803,295
546,435
256,290
273,172
2,144,349
60,836
13,160
48,073
661,470
168,876
6,214,326
￦ 9,209,259
2,207,080
57,032
131,069
47,078
187,640
465,109
192,659
7,095,935
￦ 10,743,681
2,352,462
60,789
139,703
50,179
200,000
495,746
205,350
7,563,351
US$ 11,451,376
KOREAN AIR ANNUAL REPORT 2007
066 · 067
BALANCE SHEETS (CONTINUED)
U. S. dollars in thousands
(Note 2)
Korean won in millions
As of December 31, 2006 and 2007
LIABILITIES AND STOCKHOLDERS' EQUITY (CONT'D)
Stockholders' equity (Note 16):
Capital stock:
Common stock
Preferred stock
Capital surplus:
Paid-in capital in excess of par value
Asset revaluation surplus
Capital adjustments:
Treasury stock (Note 16)
Accumulated other comprehensive income:
Gain on valuation of long-term investment securities (Note 18)
Gain (loss) on valuation of derivative instruments (Note 6)
Equity adjustment arising from
equity method investment(Note 13)
Gain on valuation of other non-current assets (Note 7)
Retained earnings:
Appropriated
Unappropriated
Total stockholders' equity
Total liabilities and stockholders' equity
See accompanying notes.
2006
2007
2007
356,447
6,896
363,343
359,858
6,896
366,754
383,562
7,350
390,912
191,095
2,815,926
3,007,021
190,823
2,815,926
3,006,749
203,393
3,001,413
3,204,806
(65,399)
(65,399)
(65,399)
(65,399)
(69,707)
(69,707)
23,564
(2,534)
31,166
1,321
33,219
1,408
(4,341)
16,689
9,953
3,976
46,416
10,609
4,238
49,474
574,200
479,592
1,053,792
4,375,446
￦ 13,584,705
925,200
129,030
1,054,230
4,408,750
￦ 15,152,431
986,144
137,529
1,123,673
4,699,158
US$ 16,150,534
FINANCIAL SECTION
STATEMENTS OF INCOME
Korean won in millions
Years ended december 31, 2006 and 2007
Operating revenues (Notes 21, 23 and 24):
Passenger
Cargo
Others
Operating expenses (Notes 9, 13, 21 and 22):
Flight operations
Maintenance and overhaul
Station and ground operations
Passenger and cargo services
Others
Gross profit
Selling and administrative expenses (Notes 9 and 22)
Operating income
Other income (expenses):
Interest income
Dividend income
Interest expense
Bad debt expense
Reversal of allowance for doubtful accounts
Gain on foreign exchange transactions, net
Gain (loss) on foreign currency translation, net
Equity in earnings of equity method investments, net
Loss on disposal of equity method investments, net
Gain (loss) on valuation of derivative instruments, net
Gain (loss) on settlement of derivative instruments, net
Gain (loss) on valuation of interest rate swap contracts, net
Gain (loss) on valuation of long-term obligations
under installment purchases, net
Gain (loss) on disposal of property, aircraft and equipment, net
(Continued)
See accompanying notes.
2006
U. S. dollars in thousands
(Note 2)
2007
2007
￦ 4,757,007
2,370,842
950,022
8,077,871
￦ 5,217,127
2,532,957
1,061,905
8,811,989
US$ 5,560,783
2,699,805
1,131,854
9,392,442
3,834,840
446,421
724,219
774,533
524,467
6,304,480
4,141,629
541,690
752,948
799,601
553,449
6,789,317
4,414,441
577,372
802,545
852,271
589,905
7,236,534
1,773,391
1,276,036
497,355
2,022,672
1,385,835
636,837
2,155,908
1,477,121
678,787
29,263
5,231
(407,534)
480
58,629
349,431
73,897
(2,412)
(1,100)
(17,526)
(2,062)
28,166
2,408
(425,071)
(410)
342
43,955
(59,253)
70,131
(14,590)
2,534
369
725
30,022
2,567
(453,071)
(437)
364
46,850
(63,156)
74,751
(15,551)
2,701
393
772
2,062
(15,484)
(725)
87,490
(772)
93,253
068 · 069
STATEMENTS OF INCOME (CONTINUED)
U. S. dollars in thousands
(Note 2)
Korean won in millions
2006
Years ended december 31, 2006 and 2007
Other income (expenses) (cont’d):
Impairment loss on property, aircraft and equipment
Gain on disposal of investments, net
Gain on assets contributed
Donations
Others, net
￦
(58,206)
416
(12,798)
(11,772)
(9,485)
2007
￦
2007
509
1,787
(10,794)
(272,124)
(544,551)
US$
542
1,905
(11,505)
(290,049)
(580,421)
Income before income taxes
487,870
92,286
98,366
Provision for income taxes (Note 17)
104,858
81,546
86,918
Net income
￦
383,012
￦
10,740
US$
11,448
Earnings per share (Notes19 and 23):
(Korean won and US$ in units)
￦
5,725
￦
148
US$
0.16
See accompanying notes.
FINANCIAL SECTION
STATEMENTS OF APPROPRIATIONS OF RETAINED EARNINGS
Korean won in millions
2006
(Years ended december 31, 2006 and 2007)
Retained earnings before appropriations:
Unappropriated retained earnings carried forward from the
prior year
Net income for the year
￦
Transfer from other reserve
Reserve for improvement of financial position
Appropriations (2007-proposed) (Notes 16 and 20):
Legal reserve
Cash dividends
Reserve fot research and human resources development reserve
Reserve for foreign currency valuation
Reserve for facility usage
Unappropriated retained earnings carried
forward to the next year
See accompanying notes.
￦
96,580
383,012
479,592
U. S. dollars in thousands
(Note 2)
2007
￦
118,290
10,740
129,030
2007
US$
126,081
11,448
137,529
479,592
69,700
198,730
74,291
211,821
1,000
10,302
130,000
100,000
120,000
361,302
5,000
34,519
70,000
109,519
5,329
36,793
74,611
116,733
118,290
￦
89,211
US$
95,087
KOREAN AIR ANNUAL REPORT 2007
070 · 071
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
U. S. dollars in thousands
(Note 2)
Korean won in millions
Years ended december 31, 2006 and 2007
As of January 1, 2007
Cash dividends
Stock dividends
Net income for the year
Paid-in captal in excess
of par value
Gain on valuation of long-term
investment securities (Note 6)
Gain on valuation of
derivative instruments
Equity adjustment arising from
equity method investment (Note 7)
Gain on valuation of other
non-current assets
As of December 31, 2007
See accompanying notes.
Common
stock
￦ 363,343
3,441
-
Accumulated
other
Capital comprehensive Retained
Capital
surplus adjustments
income
earnings
Total
Total
￦ 3,007,021 ￦(65,399) ￦ 16,689 ￦1,053,792 ￦4,375,446 ￦4,663,660
(10,302)
(10,302)
(10,981)
3,441
3,635
10,740
10,740
11,448
-
(272)
-
-
-
(272)
(290)
-
-
-
7,602
-
7,602
8,103
-
-
-
3,855
-
3,855
4,109
-
-
-
14,294
-
14,294
15,236
3,976
3,976
4,238
￦ 366,754 ￦ 3,006,749 ￦(65,399) ￦ 46,416 ￦1,054,230 ￦4,408,750 US$4,699,158
FINANCIAL SECTION
STATEMENTS OF CASH FLOWS (CONTINUED)
Korean won in millions
2006
Years ended december 31, 2006 and 2007
Cash flow from operating activities:
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation
Amortization
Provision for severance and retirement benefits
Provision for allowance for doubtful accounts
Reversal of allowance for doubtful accounts
Bad debt expense
Mileage expenses
Amortization of present value discounts
Amortization of discounts on bonds
Interest income
Dividend income
Loss (gain) on foreign currency translation, net
Equity in earnings of the equity method investments, net
Loss on disposal of the equity method investments, net
Loss (gain) on valuation of derivative instruments, net
Loss (gain) on valuation of interest rate swap contracts, net
Loss (gain) on valuation of long-term obligations
under installment purchases, net
Impairment loss on property, aircraft and equipment
Loss (gain) on disposal of property, aircraft and equipment, net
Gain on disposal of the investments
Others
Changes in operating assets and liabilities:
Trade accounts and notes receivable
Inventories
Advance payments
Prepaid expenses
Accrued income
Other accounts receivable
Derivative instrument assets
Deferred income tax assets
Other long-term assets
Trade accounts and notes payable
Other accounts payable
(Continued)
See accompanying notes.
￦
383,012
U. S. dollars in thousands
(Note 2)
2007
￦
10,740
2007
US$
11,448
696,875
13,287
150,162
172
(480)
23,596
54,518
17,750
(15,650)
(44)
(360,760)
(73,897)
2,412
1,100
2,062
(2,062)
729,259
17,120
128,649
940
(342)
410
23,783
46,696
17,113
(10,630)
67,936
(70,131)
14,590
(2,534)
(725)
725
777,296
18,247
137,124
1,002
(364)
437
25,349
49,772
18,240
(11,330)
72,411
(74,751)
15,551
(2,701)
(772)
772
58,206
15,484
(416)
-
(87,490)
(509)
(2,058)
(93,253)
(542)
(2,194)
(41,741)
(24,672)
35,124
760
6,191
13,595
4,421
59,608
3,041
17,009
3,467
(80,047)
(57,594)
(74,368)
(13,966)
(41,411)
7,783
(338)
38,597
8,455
(35,609)
33,110
(85,320)
(61,388)
(79,267)
(14,886)
(44,139)
8,296
(360)
41,139
9,012
(37,955)
35,291
KOREAN AIR ANNUAL REPORT 2007
072 · 073
STATEMENTS OF CASH FLOWS (CONTINUED)
Korean won in millions
2006
Years ended december 31, 2006 and 2007
Changes in operating assets and liabilities (continued):
Advance receipts from customers
Withholdings
Accrued expenses
Income taxes payable
Other current liabilities
Withdrawal of severance and retirement benefits
from the Korean National Pension Corporation
Derivative instrument liabilities
Long-term withholdings
Long-term non-trade payable
Payment of severance and retirement benefits
Deposits for severance and retirement benefits
Total adjustments
Net cash provided by operating activities
￦
45,949
2,686
52,002
42,508
(211)
U. S. dollars in thousands
(Note 2)
2007
￦
109,768
6,673
(1,605)
(18,236)
150
2007
US$
116,999
7,113
(1,710)
(19,437)
160
3,445
119
134
(133,047)
(41,216)
631,487
1,014,499
3,172
59
(1,611)
232,000
(144,976)
(180,620)
662,188
672,928
3,380
63
(1,717)
247,281
(154,526)
(192,517)
705,806
717,254
Cash flows from investing activities:
Decrease (increase) in short-term financial instruments, net
Decrease in short-term investment securities
Decrease (increase) in long-term investment securities, net
Acquisition of equity method investments
Decrease in long-term loans, net
Increase in guarantee deposits, net
Proceeds from disposal of property, aircraft and equipment
Acquisition of property, aircraft and equipment
Acquisition of intangible assets
Dividend income
Decrease in other assets
Net cash used in investing activities
3,658
5,038
29
(11,000)
28,074
(7,564)
96,942
(1,094,611)
(16,360)
25,313
(970,481)
(1,077)
3,626
(7,944)
(877,827)
37,109
(25,559)
215,670
(1,023,063)
(19,965)
11,272
7
(1,687,751)
(1,148)
3,864
(8,467)
(935,651)
39,554
(27,243)
229,876
(1,090,452)
(21,280)
12,015
8
(1,798,924)
Cash flows from financing activities:
Proceeds from short-term borrowings, net
Proceeds from issuance of bonds
Proceeds from long-term loans
Proceeds from (repayment of) obligations under capital leases, net
Proceeds from asset-backed securitization loans
Repayment of current maturities of long-term liabilities
Stock issue costs
Payment of dividends
Net cash provided by (used in) financing activities
51,654
672,479
512,712
(312,862)
(1,067,817)
(23,945)
(167,779)
156,701
1,070,718
802,255
33,686
206,706
(1,013,268)
(272)
(6,890)
1,249,636
167,023
1,141,247
855,100
35,905
220,322
(1,080,013)
(290)
(7,344)
1,331,950
(123,761)
577,424
453,663
234,813
453,663
688,476
250,280
483,546
733,826
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
See accompanying notes.
￦
￦
US$
FINANCIAL SECTION
NOTES TO FINANCIAL STATEMENTS
(December 31, 2006 and 2007)
1. Organization and
business
Korean Air Lines Co., Ltd. (the “Company”) was incorporated on June 19, 1962 under the Commercial Code of the
Republic of Korea to engage in domestic and international airline services, manufacture of aircraft parts, maintenance of aircraft, and catering of in-flight meals.
The Company is a publicly traded company upon listing its common stock on the Korea Stock Exchange since
1966. The total capital stock of the Company as of December 31, 2007 amounted to ￦366,754 million.
The financial statements of the Company for the year ended December 31, 2007 will be approved by the board of
directors at the meeting to be held on February 28, 2008.
2. Summary of
significant
accounting policies
Basis of financial statement preparation
The Company maintains its official accounting records in Korean won and prepares statutory financial statements
in the Korean language in conformity with accounting principles generally accepted in the Republic of Korea
(“Korean GAAP”). Certain accounting principles applied by the Company that conform with financial accounting
standards and accounting principles in the Republic of Korea may not conform with generally accepted accounting
principles in other countries. Accordingly, these financial statements are intended for use by those who are informed
about Korean accounting principles and practices. The accompanying financial statements have been condensed,
restructured and translated into English (with certain expanded descriptions) from the Korean language financial
statements.
Certain supplementary information attached to the Korean language financial statements, but not required for a fair
presentation of the Company’s financial position, results of operations and cash flows, is not presented in the
accompanying financial statements.
Adoption of new Statements of Korea Accounting Standards
The Korea Accounting Standards Board has issued new Statements of Korea Accounting Standards (“SKAS”) to
revise the existing Korea accounting standards with the intention to meet international practices and disclosure
rules. The new SKAS have become effective for accounting periods beginning on or after January 1, 2007 following:
SKAS 11 Discontinuing Operations
SKAS 21 Preparation and Presentation of Financial Statements
SKAS 22 Share-based Payment
SKAS 23 Earnings per Share
The Company has adopted these new standards in its financial statements for the year ended December 31, 2007.
Adoption of these new standards did not have any material effect on the Company’s financial statements, except for
the effects of SKAS 21 as described below.
The adoption of SKAS 21 has resulted in the addition of a statement of changes in equity in the 2007 financial statements and reclassification of certain comparative amounts in the 2006 financial statements to conform with the
2007 presentation. These reclassifications have had no effect on the Company’s net income and retained earnings as
previously reported. A statement of changes in equity is not required to be presented for the comparative 2006
financial statements according to the transitional provision of SKAS 21 on application of retrospective application.
KOREAN AIR ANNUAL REPORT 2007
074 · 075
NOTES TO FINANCIAL STATEMENTS
(December 31, 2006 and 2007)
Financial statement translation
The accompanying balance sheet as of December 31, 2007, and the related statements of operations, cash flows and
changes in stockholders’ equity for the year then ended are expressed in Korean won and, solely for the convenience
of the reader, have been translated into United States dollars at the rate of ￦938.2 to US$1, the exchange rate on
December 31, 2007. Such translation should not be construed as a representation that the Korean won amounts can
actually be converted into United States dollars at the exchange rate used for the purpose of such translation.
Revenue recognition
Revenue from airline (passenger and cargo) services is recognized upon completion of the services. Revenue from
maintaining aircrafts and manufacturing aircrafts parts in the aerospace business is recognized when the related services are rendered and goods are delivered upon transfer of risk and rewards to the customers.
Allowance for doubtful accounts
The Company provides an allowance for doubtful accounts in consideration of the estimated losses that may arise
from non-collection of its receivables. The estimate of losses, if any, is based on a review of the aging and current status of the outstanding receivables.
Cash equivalents
Highly liquid deposits and marketable securities with original maturities of three months or less, and which have no
significant risk of loss in value by interest rate fluctuations, are considered as cash equivalents.
Financial instruments
Financial instruments, such as time deposits and restricted bank deposits, which are traded by financial institutions
and are held for short-term cash management purposes or which will mature within one year, are accounted for as
short-term financial instruments. Financial instruments other than cash equivalents and short-term financial instruments are recorded as long-term financial instruments.
Inventories
Inventories are valued at the lower of cost or market, with cost being determined using the moving- average method
for airline service supplies and aerospace raw materials, the specific identification method for materials-in-transit,
and the first-in, first-out method for all other inventories.
The Company applies the lower of cost or market method (products, goods, work in-process at net realizable value,
materials at current replacement cost) by the individual items of inventories. When the market value of an inventory falls below the carrying amount, a valuation loss on such inventory is recognized as part of operating expenses. In
addition, losses from the differences in quantity of inventories between accounting records and physical inventory
counts arising from the ordinary course of business are charged to operating expenses. Losses arising from outside
the ordinary course of business are charged to non-operating expenses.
FINANCIAL SECTION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(December 31, 2006 and 2007)
Investment securities
Investments in securities within the scope of SKAS 8 Investments in Securities are classified as either trading, held-tomaturity and available-for-sale securities, as appropriate, and are initially measured at cost, including incidental
expenses, with cost being determined using the moving average method. The Company determines the classification of its investments after initial recognition, and, where allowed and appropriate, re-evaluates this designation at
each fiscal year end.
Securities that are acquired and held principally for the purpose of selling them in the near term are classified as
trading securities. Debt securities which carry fixed or determinable payments and fixed maturity are classified as
held-to-maturity if the Company has the positive intention and ability to hold to maturity. Securities that are not
classified as either trading or held-to-maturity are classified as available-for-sale securities.
After initial measurement, available-for-sale securities are measured at fair value with unrealized holding gains or
losses, net of applicable taxes, included as a component of other comprehensive income in stockholders’ equity.
Likewise, trading securities are also measured at fair value after initial measurement, but with unrealized holding
gains or losses reported as part of net income. Held-to-maturity securities are measured at amortized cost after initial measurement. The cost is computed as the amount initially recognized minus principal repayments, plus or
minus the cumulative amortization using the effective interest method of any difference between the initially recognized amount and the maturity amount.
The fair value of available-for-sale securities that are traded actively in the open market (marketable securities) is
measured at the closing price of those securities at the balance sheet date, except for non-marketable equity securities which are measured at cost subsequent to initial measurement if their fair values cannot be reliably estimated.
Non-marketable debt securities are carried at a value using the present value of future cash flows discounted using
an appropriate interest rate which reflects the issuer’s credit rating announced by a public independent credit rating
agency.
Available-for-sale and held-to-maturity securities are classified as long-term investments, except if the maturity of
the securities falls within one year or are certain to be disposed of within one year from the balance sheet date are
classified as short-term investments.
The Company recognizes an impairment loss on its investments in securities if there is objective evidence that the
securities are impaired. The impairment loss is charged to statement of income.
Equity method investments
Investments in entities over which the Company has control or significant influence are accounted for using the
equity method.
Under the equity method of accounting, the Company’s initial investment in an investee is recorded at acquisition
cost. Subsequently, the carrying amount of the investment is adjusted to reflect the Company’s share of income or
loss of the investee in the statement of income and share of changes in equity that have been recognized directly in
the equity of the investee in the related equity account of the company on the balance sheet. If the Company’s share
of losses of the investee equal or exceed its interest in the investee, it discontinues recognizing its share of further
losses. However, if the Company has other long-term interests in the investee, it continues recognizing its share of
further losses to the extent of the carrying amount of such long-term interests.
KOREAN AIR ANNUAL REPORT 2007
076 · 077
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(December 31, 2006 and 2007)
At the date of acquisition, the excess of the cost of the investment over the Company’s share of the net fair value of
the investee’s identifiable assets and liabilities is accounted for as goodwill which is amortized over its useful life of 5
years using the straight-line method. Conversely, negative goodwill represents the excess of the Company’s share in
the net fair value of the investee’s identifiable assets and liabilities over the cost of the investment. Negative goodwill
is recorded to the extent of the fair value of acquired non-monetary assets and recognized as income using the
straight-line method over the remaining weighted-average useful life of those acquired non-monetary assets. The
amount of negative goodwill in excess of the fair value of acquired non-monetary assets is recognized as income
immediately.
The Company’s share in the investee’s unrealized profits and losses resulting from transactions between the
Company and its investee are eliminated.
In translating the financial statements of foreign entities into Korean won, assets and liabilities are translated at the
exchange rate on the balance sheet date and income and expenses are translated at the weighted-average exchange
rate for the period. All resulting exchange differences are recognized as foreign currency translation adjustments in
other comprehensive income within stockholders’ equity.
Property, aircraft and equipment, and related depreciation
Property, aircraft and equipment are stated at cost less accumulated depreciation, except for certain assets which
were revalued in accordance with the Korean Assets Revaluation Law and are stated at revalued amount less accumulated depreciation. The revaluation is no longer allowed effective from January 1, 2001.
Maintenance and repairs are expensed in the year in which they are incurred. Expenditures which enhance the value
or extend the useful life of the related assets are capitalized.
Depreciation of property, plant and equipment is provided using the straight-line method over the estimated useful
life of the assets as follows:
Buildings
Aircraft and engine
Leased aircraft and engine
Others
Years
40
20
20
6 - 15
Intangible assets
Intangible assets of the Company consist of facility usage rights, development costs and other intangible assets,
which are stated at cost less accumulated amortization. Amortization is recognized as an expense based on the
straight-line method over the estimated useful life ranging from 5 to 30 years.
Discount on bonds
Discount on bonds including bond issuance costs is presented as a direct deduction from the nominal value of the
bonds and is amortized using the effective-interest-rate method over the life of the bonds.
FINANCIAL SECTION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(December 31, 2006 and 2007)
Severance and retirement benefits
In accordance with the Korean Law on Guarantee of Employee’s Severance and Retirement Benefits and the
Company’s regulations, employees terminating their employment with more than one year of service are
entitled to severance and retirement benefits, based on the rates of pay in effect at the time of termination,
years of service and certain other factors. The provision for the years ended December 31, 2007 and
December 31, 2006 is sufficient to state the liability under the Korean Labor Standards Law and the
Company’s regulations at the estimated obligation arising from services performed to and at rates of pay in
effect as of December 31, 2007 and 2006. Funding of this liability is not required by Korean law.
The lesser of 5% of annual payroll expense or 35% of the accumulated severance and retirement benefits
provision is deductible for corporate income tax reporting purposes unless benefits are actually paid or the
non tax-deducted portion is deposited with financial institutions. Accordingly, the Company has deposited
a portion of its severance and retirement benefits obligation with an insurance company.
Since the Company’s employees are individually nominated as the vested beneficiaries of the deposit in
respect of what is due to them as of December 31, 2007 and December 31, 2006, such deposit has been offset
against the Company’s liability for severance and retirement benefits as of such dates.
In accordance with the Korean National Pension Law prior to revision, the Company had prepaid a portion
of its severance and retirement benefits obligation to the Korean National Pension Corporation (“KNPC”)
at the rate of 3% of payroll expense up through March 31, 1999. Such prepayments have been offset against
the Company’s liability for severance and retirement benefits. In accordance with a revision in the Korean
National Pension Law, additions to these prepayments are no longer required effective from April 1, 1999.
Leases
The Company accounts for leases that transfer substantially all the risks and rewards incidental to ownership of
assets as capital leases and leases other than capital leases as operating leases.
Rental expenses for operating leases, which are expensed on a straight-line basis over the lease term, are charged to
current operations as they become payable. The Company recognizes a capital lease as an asset and a liability in the
balance sheet at an amount equal to the fair value of the leased asset or, if lower, the present value of the minimum
lease payments at the inception of the lease. In calculating the present value of the minimum lease payments, any
residual value guarantee is excluded and the interest rate implicit in the lease is used as the discount rate. Leased
assets are depreciated in the same manner as other assets through purchases. Minimum lease payments are apportioned between the finance charges and the reduction of the lease liability. The finance charges are allocated to each
period by the effective interest rate method and recognized as an interest expenses.
Income taxes
Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to
be recovered or paid to the tax authorities. Deferred income taxes are provided using the liability method for the tax
effect of temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred income tax assets and liabilities are measured using the enacted tax rates and laws that will
be in effect when the differences are expected to reverse, and are classified as current or non-current, respectively,
based on the classification of the related asset or liability in the balance sheet. In addition, current tax and deferred
tax are charged or credited directly to equity if the tax relates to items that are credited or charged directly to equity.
KOREAN AIR ANNUAL REPORT 2007
078 · 079
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(December 31, 2006 and 2007)
Foreign currency translation
Transactions involving foreign currencies are recorded at the exchange rates prevailing at the time the transactions are
made. Assets and liabilities denominated in foreign currencies are translated into Korean won at the appropriate
exchange rates on the balance sheet dates. The resulting unrealized foreign currency translation gains or losses are credited or charged to current operations.
Valuation of long-term receivables (payables) at present value
Receivables (payables) arising from long-term installment transactions are stated at present value. The difference
between the carrying amount of these receivables (payables) and their present value is amortized using the effectiveinterest-rate method and the amortization is credited (charged) to current operations over the installment period.
Impairment of assets
When the recoverable amount of an asset is less than its carrying amount due to obsolescence, physical damage or
abrupt decline in the market value of the asset, the decline in value, if material, is deducted from the carrying
amount and recognized as an asset impairment loss in the current year.
Derivative financial instruments
Derivative instruments are presented as assets or liabilities valued principally at the fair value of rights or obligations
associated with the derivative contracts. The unrealized gain or loss from a derivative transaction with the purpose
of hedging the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment is recognized in current operations. Derivative instrument with the purpose of hedging the exposure to the
variability of cash flows of a recognized asset, liability or a forecasted transaction, where the hedge-effective portion
of the derivative’s gain or loss is deferred as other comprehensive income, a component of stockholders’ equity. The
ineffective portion of the gain or loss is charged or credited to current operations. Derivative instrument that does
not meet the criteria for hedge accounting is measured at fair value with unrealized gain or loss reported in current
operations.
Frequent-flyer program
The Company operates a frequent-flyer program to award its members based on accumulated mileage credits. The
estimated incremental costs of providing travel awards under the frequent-flyer program are accrued as unredeemed
mileage liabilities.
Per share amounts
Basic earnings per share are computed by dividing net income by the weighted average number of common shares
outstanding during the year. Diluted earnings per share are calculated by dividing net income by the weighted average
number of common shares outstanding during the year plus the weighted average number of common shares that
would have been outstanding assuming the conversion of all dilutive potential common shares.
Use of estimates
The preparation of financial statements in accordance with Korean GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
FINANCIAL SECTION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(December 31, 2006 and 2007)
3. Cash and cash equivalents Cash and cash equivalents, and financial instruments as of December 31, 2006 and 2007 consist of the following:
and financial instruments
Korean won in millions
2006
Cash on hand
Checking and passbook accounts
Money market funds
Other deposits
Foreign currency deposits
Guarantee deposits for the maintenance
of checking accounts
Less:
Short-term financial instruments
Long-term financial instruments
Cash and cash equivalents
￦
￦
634
30,267
153,115
11,423
273,433
U. S. dollars in thousands
(Note 2)
2007
2007
￦
1,280 US$
1,364
43,727
46,607
282,108
300,691
12,051
12,845
365,590
389,672
16
468,888
14
704,770
14
751,193
(15,209)
(16)
453,663
(16,280)
(14)
688,476
(17,352)
(15)
US$ 733,826
￦
4. Short-term investment
securities
Short-term investment securities as of December 31, 2006 and 2007 consist entirely of government and public
bonds.
5. Inventories
Inventories as of December 31, 2006 and 2007 consist of the following:
Korean won in millions
Merchandise
Work-in-progress
Raw materials
Supplies
Materials-in-transit
Less valuation allowance
6. Long-term investment
securities
U. S. dollars in thousands
(Note 2)
2006
2007
13,864 ￦
14,412
52,030
58,472
26,589
36,924
132,101
163,899
4,603
8,742
229,187
282,449
(8,382)
(3,265)
￦ 220,805 ￦ 279,184
￦
2007
15,361
62,324
39,357
174,694
9,318
301,054
(3,480)
US$ 297,574
US$
Long-term investment securities as of December 31, 2006 and 2007 consist of the following:
Korean won in millions
Available-for-sale securities
Held-to-maturity securities
2006
79,649
1,314
￦
80,963
￦
U. S. dollars in thousands
(Note 2)
2007
96,787
2,805
￦
99,592
￦
2007
US$ 103,162
2,990
US$ 106,152
KOREAN AIR ANNUAL REPORT 2007
080 · 081
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(December 31, 2006 and 2007)
Available-for-sales securities as of December 31, 2006 and 2007 consist of the following:
Korean won in millions
2007
Equity
Acquisition
ownership
cost
(%)
Marketable securities 1) :
Hana Financial Group Inc.
Hanil Cement Co., Ltd.
Meritz Securities Co., Ltd.
GS Home Shopping Inc.
Hanjin Heavy Industries Co., Ltd.
Hanjin Heavy Industries &
Construction Holdings Co., Ltd.
0.11
3.70
0.96
4.50
0.08
0.05
2006
Book
value
￦ 1,602 ￦ 11,767
10,229
30,283
3,283
6,773
20,226
19,849
399
5,630
Fair value
or net-asset
value
Equity
ownership
(%)
Book
value
￦ 11,767
30,283
6,773
19,849
5,630
0.11
3.70
1.04
3.69
0.08
￦ 11,417
23,027
3,211
20,075
1,668
148
35,887
1,037
75,339
1,037
75,339
-
-
59,398
Non-marketable securities 1) :
The Korea Economic Daily
Daehan Oil Pipeline Corporation
0.05
3.10
145
6,967
145
7,678
58
7,678
0.05
3.10
145
6,968
Kihyup Finance Co., Ltd.
Cheju Convention Center, Ltd.
Korea Tourist Supply Center Inc.
Entob Co., Ltd.
Incheon United Football Club
Sita Inc.
Seoul Tourism Marketing
1.72
0.52
0.40
6.25
0.52
0.85
2.84
500
700
81
1,000
100
406
500
10,399
500
700
81
1,000
100
406
500
11,110
634
770
90
1,345
(7)
406
500
11,474
1.72
0.52
0.40
6.25
0.52
0.85
-
500
700
81
1,000
100
405
9,899
Investments in affiliated companies 2) :
Korea Global Logistics
System Co., Ltd.
Hanjin International Japan
Terminal One Management Inc.
US Cargo Sales Joint Venture, Inc
Global Logistics System
Asia Pacific Co., Ltd.
65.00
55.00
25.00
33.33
650
394
32
1,092
650
394
32
1,092
1,495
886
7
342
65.00
55.00
25.00
33.33
650
394
32
1,092
31.50
64
2,232
64
2,232
152
2,882
31.50
64
2,232
3,602
1,734
￦53,854
US$ 57,402
6,372
1,734
￦96,787
US$103,162
6,372
1,734
￦ 97,801
US$ 104,243
Beneficiary certificates
Investments in other equity securities
Total
U. S. dollars in thousands (Note 2)
6,454
1,666
￦ 79,649
1) Marketable equity securities were valued at quoted market value as of the balance sheet date, while non-marketable equity securities
whose fair values could not be reliably measured due to the lack of reliable information on the future cash flows of the investees were
stated at acquisition cost. Daehan Oil Pipeline Corporation’s securities, non-marketable equity securities, are recorded at fair value
according to [2006-5] “Accounting for Valuation on Non-listed Equity Securities” and the difference between acquisition cost and fair
value is accounted for as other comprehensive income.
2) The Company’s equity interests in these investees are 20% or more with significant influence or control. However, the Company did
not apply the equity method in accounting for these investees since the impact of using the equity method is not material to the
Company on the valuation of the investments.
FINANCIAL SECTION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(December 31, 2006 and 2007)
The details of changes in fair value adjustments of long-term investment securities recorded in accumulated other
comprehensive income for the year ended December 31, 2007 are as follows:
Korean won in millions
Hana Financial Group Inc.
Hanil Cement Co., Ltd.
Meritz Securities Co., Ltd.
GS Home Shopping Inc.
Hanjin Heavy Industries Co., Ltd
Hanjin Heavy Industries & Construction
Holdings Co., Ltd.
Beneficiary certificates
Daehan Oil Pipeline Corporation
Total
Tax effect
Net Total
U. S. dollars in thousands
(Note 2)
January 1,
Increase
2007
(decrease)
￦ 9,815 ￦
350
12,797
7,257
1,210
2,280
4,706
(5,084)
819
4,413
December 31,
2007
￦
10,165
20,054
3,490
(377)
5,231
303
2,852
32,502
(8,938)
23,564
587
(27)
710
10,486
(2,884)
7,602
890
2,825
710
42,988
(11,822)
31,166
25,116
8,103
33,219
Held-to-maturity securities are entirely comprised of government and public bonds whose annual maturities as of
December 31, 2006 and 2007 are as follows:
Korean won in millions
More than 1 year to 5 years
More than 5 years to 10 years
2006
￦
1,307
7
￦
1,314
U. S. dollars in thousands
2007
￦
2,792
13
￦
2,805
(Note 2)
2007
2,976
14
US$
2,990
US$
KOREAN AIR ANNUAL REPORT 2007
082 · 083
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(December 31, 2006 and 2007)
7. Equity method
investments
Equity method investments as of December 31, 2006 are as follows:
Korean won in millions
Korea Airport Service Co., Ltd.
Hanjin Information Systems &
Telecommunication Co., Ltd
Topas Co., Ltd
KAL Hotel Network Co., Ltd
Hanjin Travel Service Co., Ltd.
Air Total Service Co., Ltd.
Jungseok Enterprise Co., Ltd.
Jedong Leisure Co., Ltd.
Hanjin Energy Co., Ltd.
Hanjin International Corporation
Korean Air Lease & Finance
Co., Ltd.
Hanjin Shipping Co., Ltd. 1)
Keoyang Shipping Co., Ltd. 1)
Grandstar Cargo Int’l
Airlines Co., Ltd. 2)
Equity
ownership Acquisition cost
Book value
Fair value or net asset value
(%)
2007
2006
2007
2006
2007
2006
2007
59.54
￦ 92,052 ￦ 93,320 ￦120,448 ￦131,508 ￦120,448 ￦ 131,508
99.35
67.35
100.00
55.82
100.00
24.40
100.00
82.52
100.00
15,111
730
99,900
27,788
2,000
54,328
11,000
189,078
15,111
730
99,900
27,788
2,000
54,328
14,000
854,821
189,078
22,983
15,386
53,109
33,255
1,681
57,211
11,160
21,523
23,784
16,644
47,626
35,743
2,925
55,818
14,194
899,433
18,638
22,983
15,386
53,109
31,932
1,681
52,254
11,160
21,523
23,784
16,644
47,626
35,743
2,925
53,041
14,194
895,336
18,638
100.00
6.04
1.03
891
41,237
4,640
891
57,720
4,640
144,709
140,568
2,362
163,591
150,255
2,572
114,308
152,628
2,362
118,245
156,517
2,572
2,255
2,255
2,255
￦ 538,755 ￦1,416,582 ￦ 624,395 ￦1,564,986 ￦ 599,774 ￦1,519,028
US$574,297 US$1,509,893 US$ 678,174 US$1,668,073 US$ 651,433 US$1,619,088
25.00
U. S. dollars in thousands (Note 2)
1) Although the Company’s equity ownerships on the investees are less than 20%, the investments are classified as equity method
investments, given the Company’s significant influence on the investees.
2) In December 2007, the Company incorporated GrandStar Cargo Int’l Airlines Co., Ltd. (“GCIAC”) with an investment of
US$2.4 million through a joint venture with Sinotrans Air Transportation Development, one of China’s biggest logistics companies.
The changes in carrying amount of equity method investments for the years ended December 31, 2007 and 2006 are
as follows:
Korean won in millions
Equity in
earnings(loss)
Jan.1
Korea Airport Service Co., Ltd. ￦ 120,449 ￦
Hanjin Information Systems &
Telecommunication Co., Ltd 22,982
Topas Co., Ltd
15,386
KAL Hotel Network Co., Ltd.
53,109
Hanjin Travel Service Co., Ltd.
33,255
Air Total Service Co., Ltd.
1,681
Increase
Dividends
of investee
1,269 ￦ (933) ￦ 7,331 ￦
-
(348)
(5,388)
-
1,751
6,926
(1,864)
2,754
1,245
Loss on
deemed
disposal2)
- ￦
-
Other
Other comprehensive
changes
income
Dec. 31
20 ￦ 3,372 ￦ 131,508
(700)
(280)
(3,619)
(4,952)
-
99
4,686
-
23,784
16,644
47,626
35,743
2,926
(Continued)
FINANCIAL SECTION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(December 31, 2006 and 2007)
Korean won in millions
Equity in
Jan.1
Increase
Loss on
Other
earnings(loss) deemed
Other
comprehensive
of investee
disposal2)
changes
income
Dec. 31
121
50
30,685
(2,392)
13,305
10,014
206
(14,590)
-
(4,746)
(14)
7,326
9,666
(644)
-
3,354
(2)
13,928
(7,819)
(4,089)
2,904
4
55,818
14,194
899,433
18,638
163,591
150,254
2,572
Dividends
Jungseok Enterprise Co., Ltd.
57,211
(122)
Jedong Leisure Co., Ltd.
11,160
3,000
Hanjin Energy Co., Ltd.
854,820
Hanjin International Corporation 21,523
KALF
144,709
Hanjin Shipping Co., Ltd.
140,568
16,483 (4,481)
Keoyang Shipping Co., Ltd.
2,362
GrandStar Cargo Int’l
Airlines Co., Ltd.
2,255
2007
￦ 624,395 ￦ 877,827 ￦(11,272) ￦
2006
￦ 563,067 ￦ 5,718 ￦(11,443) ￦
2,255
70,132 ￦(14,590) ￦ 2,057 ￦ 16,437 ￦1,564,986
78,896 ￦
- ￦
- ￦ (6,843) ￦ 624,395
1) In applying the equity method of accounting for the year ended December 31, 2007, the Company used the investees’ latest
unaudited financial statements as their audited financial statements were not available.
2) Loss on deemed disposal represents dilution of Hanjin Shipping Co., Ltd. (“HJS”)’s equity ownership as a result of HJS issued
new common stock to third parties.
Market values of marketable equity method investments as of December 31, 2007 and 2006 are as follows:
<2007>
Number of
shares
1,885,134
4,481,166
Korea Airport Service Co., Ltd.
Hanjin Shipping Co., Ltd.
<2006>
Number of
shares
1,866,496
4,481,166
Korea Airport Service Co., Ltd.
Hanjin Shipping Co., Ltd.
Korean won
in units
Korean won
in millions
Market value
per share
￦
53,000
39,800
Market
capitalization
￦
99,912
191,484
Korean won
in units
Korean won
in millions
Market value
per share
￦
31,950
26,400
Market
capitalization
￦
59,635
118,303
Changes in the goodwill (negative goodwill) for the years ended December 31, 2007 and 2006 are as follows:
Korean won in millions
Hanjin Travel Service Co., Ltd.
Jungseok Enterprise Co., Ltd.
Hanjin Shipping Co., Ltd.
Hanjin Energy Co., Ltd.
2007
2006
January 1
￦
1,323
4,958
(12,059)
￦
(5,779)
￦
(2,335)
Increase
￦
￦
￦
5,558
4,820
10,379
-
Amortization
￦
1,323
2,181
(239)
723
￦
3,988
￦
3,444
December 31
￦
2,777
(6,262)
4,097
￦
612
￦
(5,779)
KOREAN AIR ANNUAL REPORT 2007
084 · 085
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(December 31, 2006 and 2007)
Changes in the proportionate share of the accumulated other comprehensive income of investees arising from equity method of accounting for the years ended December 31, 2006 and 2007 are as follows:
Korean won in millions
2006
Beginning balance
Increase (decrease)
Ending balance
2007
U. S. dollars in thousands
(Note 2)
2007
Gain
Loss
Gain
Loss
Gain
Loss
￦ 20,813 ￦ (18,311) ￦ 21,250 ￦ (25,591) US$ 22,649 US$ (27,276)
437
(7,280)
26,204
(11,910)
27,930
(12,694)
￦ 21,250 ￦ (25,591) ￦ 47,454 ￦ (37,501) US$ 50,579 US$ (39,970)
Unrealized gains arising from aircraft leasing transactions with Korean Air Lease & Finance Co., Ltd. (“KALF”)
which were eliminated amounted to ￦45,345 million as of December 31, 2007 (￦30,400 million as of December
31, 2006).
The summary of financial position of the equity method investees as of December 31, 2007 and the results of their
operations for the year then ended based on the investees’ latest available financial statements are as follows:
Korean won in millions
Stockholders’
Net income
Sales
equity
(loss)
￦ 352,865 ￦ 132,038 ￦ 220,827 ￦ 311,968 ￦
12,255
Assets
Korea Airport Service Co., Ltd.
Hanjin Information Systems &
Telecommunication Co., Ltd.
Topas Co., Ltd.
KAL Hotel Network Co., Ltd.
Hanjin Travel Service Co., Ltd.
Air Total Service Co., Ltd.
Jungseok Enterprise Co., Ltd.
Jedong Leisure Co., Ltd.
Hanjin Energy Co., Ltd.
Hanjin International Corporation
KALF
Hanjin Shipping Co., Ltd.
Keoyang Shipping Co., Ltd.
46,879
32,342
145,564
80,696
7,324
279,842
14,196
2,285,520
70,604
3,221,318
6,005,748
339,094
Liabilities
22,482
7,630
94,669
16,434
4,399
49,175
2
1,200,584
51,966
3,316,849
3,415,756
89,278
24,397
24,712
50,895
64,262
2,925
230,667
14,194
1,084,936
18,638
(95,531)
2,589,992
249,816
90,748
50,028
41,979
28,636
26,094
30,509
88,858
42,817
127,636
6,936,020
140,232
1,762
10,284
(1,864)
6,162
1,245
7,013
50
38,059
(2,393)
(2,128)
145,722
19,989
FINANCIAL SECTION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(December 31, 2006 and 2007)
8. Property, aircraft and
equipment
Cost of property, aircraft and equipment and related accumulated depreciation as of December 31, 2006 and 2007
consist of the following:
Korean won in millions
2006
683,352
850,060
4,852,840
1,409,255
4,827,556
1,246,078
545,397
823,611
15,238,149
(4,429,360)
(58,964)
￦ 10,749,825
￦
Land
Buildings
Aircraft
Engines
Leased aircraft
Leased engines
Construction in-progress
Other
Less accumulated depreciation
Less accumulated impairment losses
U. S. dollars in thousands
(Note 2)
2007
593,574
851,806
5,302,405
1,452,227
5,161,484
1,251,980
595,452
846,510
16,055,438
(5,126,718)
(59,034)
￦ 10,869,686
￦
2007
US$ 632,673
907,915
5,651,680
1,547,887
5,501,476
1,334,450
634,675
902,271
17,113,027
(5,464,419)
(62,927)
US$11,585,681
Changes in net book value of property, aircraft and equipment for the years ended December 31, 2006 and 2007 are
as follows:
<2006>
Korean won in millions
January 1
Land
Buildings
Aircraft
Engines
Leased aircraft
Leased engines
Construction
in-progress
Others
￦
Additions
Disposals
Impairment December
Depreciation
/transfers
loss
31
648,133 ￦
663 ￦ 34,556 ￦
- ￦
- ￦ 683,352
651,773
765
50,023
(20,494)
(1,066)
681,001
2,950,464
37,003
297,975 (264,158)
(57,140)
2,964,144
788,165
4,451
129,160
(84,208)
837,568
3,761,943
7,621
159,370 (218,737)
3,710,197
1,090,787
1,705
(53,657)
(56,492)
982,343
265,133
990,830
(710,566)
545,397
366,296
51,897
(19,584)
(52,786)
345,823
￦ 10,522,694 ￦1,094,935 ￦ (112,723) ￦(696,875) ￦ (58,206) ￦ 10,749,825
KOREAN AIR ANNUAL REPORT 2007
086 · 087
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(December 31, 2006 and 2007)
<2007>
Korean won in millions
January 1
Land
Buildings
Aircraft
Engines
Leased aircraft
Leased engines
Construction
in-progress
Others
Additions
￦ 683,352 ￦
681,001
1,522
2,964,144
2,775
837,568
9,582
3,710,197
17,226
982,343
4,160
Disposals
Impairment
Depreciation
December 31
/transfers
loss
￦ (89,778) ￦
- ￦
- ￦ 593,574
272
(21,566)
661,229
379,842
(295,292)
3,051,469
33,158
(88,348)
791,960
383,650
(216,111)
3,894,962
18,756
(54,939)
950,320
545,397
1,210,918 (1,160,863)
￦ 345,823 ￦ 53,093 ￦ (15,193) ￦ (53,003) ￦
￦10,749,825 ￦1,299,276 ￦(450,156) ￦(729,259) ￦
595,452
- ￦ 330,720
- ￦10,869,686
U. S. dollars
in thousands (Note 2) US$11,457,925 US$1,384,860 US$(479,808) US$(777,296) US$
- US$11,585,681
As of December 31, 2007, the value of the Company’s land, determined by the Government of the Republic of Korea
for tax administration purposes, amounted to ￦755,782 million (US$805,566 thousand).
As of December 31, 2006 and 2007, the Company’s insurance policies to cover losses from fire and other casualty
losses are as follows:
Korean won in millions and U. S. dollars in thousands
Aircraft and engines
Buildings and machinery
Cash and investments
National properties
Others
9. Intangible assets
US$
￦
￦
￦
￦
2006
9,116,904
1,373,993
11,602
433,842
72,068
US$
￦
￦
￦
￦
2007
9,056,945
1,389,019
11,602
475,991
71,068
Changes in net book value of intangible assets for the years ended December 31, 2006 and 2007 are as follows:
<2006>
Facility usage rights
Development costs
Others
Korean won in millions
January 1
￦
179,374
8,462
5,847
￦
193,683
<2007>
Facility usage rights
Development costs
Others
U. S. dollars in thousands (Note 2)
Additions
￦
￦
16,344
16
16,360
Amortization
￦
(10,232)
(1,482)
(1,573)
￦
(13,287)
December 31
￦
169,142
23,324
4,290
￦
196,756
Korean won in millions
January 1
￦
169,142
23,324
4,290
￦
196,756
US$ 209,717
Additions
￦
32,511
19,966
￦
52,477
US$
55,932
Amortization
￦
(10,460)
(5,090)
(1,570)
￦
(17,120)
US$ (18,247)
December 31
￦
191,193
38,200
2,720
￦
232,113
US$ 247,402
FINANCIAL SECTION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(December 31, 2006 and 2007)
Research and development costs incurred in connection with the development of aircraft parts and new routes that
were charged to selling and administrative expenses amounted to ￦6,089 million (￦4,631 million for the year
ended December 31, 2006) and operating expenses amounted to ￦4,375 million (￦5,160 million for the year
ended December 31, 2006) for the year ended December 31, 2007.
10. Foreign currency
Foreign currency denominated monetary assets and liabilities as of December 31, 2006 and 2007 are as follows:
denominated monetary
assets and liabilities
2006
Assets
Liabilities
2007
Korean
won
Foreign currency
Foreign currency Korean won
equivalent
equivalent
in thousands
in thousands
in millions
in millions
US$ 740,445 ￦
688,318 US$ 937,500 ￦
879,562
JPY 19,535,898
152,737 JPY 22,466,259
187,218
HKD 108,733
13,003 HKD 131,896
15,862
TWD 24,607
701 TWD 29,355
847
SGD 11,336
6,867 SGD
7,043
4,571
GBP
3,419
6,236 GBP
4,191
7,854
EUR 17,930
21,914 EUR 22,931
31,673
CNY 387,565
46,109 CNY 394,984
50,736
Other
33,998 Other
61,722
￦ 969,883
￦ 1,240,045
US$ 5,349,023
JPY 43,153,017
HKD 45,798
TWD 3,060
SGD
3,430
GBP
2,261
EUR 15,814
CNY 91,653
Other
-
￦ 4,972,451
337,383
5,477
87
2,078
4,125
19,329
10,904
20,113
￦ 5,371,947
US$ 5,856,507
JPY 62,140,109
HKD 15,144
TWD 2,150
SGD
2,183
GBP
3,450
EUR
9,399
CNY 69,432
Other
-
￦ 5,494,575
517,832
1,821
62
1,416
6,466
12,983
8,919
14,687
￦ 6,058,761
KOREAN AIR ANNUAL REPORT 2007
088 · 089
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(December 31, 2006 and 2007)
11. Short-term
borrowings
Short-term borrowings as of December 31, 2006 and 2007 are as follows:
U. S. dollars
in thousands
(Note 2)
Korean won in millions
Annual interest rate
in 2007
Borrowings from:
KDB 1)
- Singapore branch
- Korea
Kookmin Bank
Hana Bank
NACF 2)
Samsung Life Insurance
Samsung Fire & Marine
Insurance
Mirae asset Life Insurance
Woori Bank
Bank of Communications
Co., Ltd.
3M Libor+0.55%
3M Libor+0.58~0.82%,
Won-based Int.+0.51%
3M Libor+0.48 ~0.58%
3M Libor+0.7~0.85%
3M Libor+0.39%
6.80%
6.80%
2006
￦
6.75%
￦
16,733
2007
￦
16,888
2007
US$
18,000
72,619
61,480
162,939
-
142,300
93,896
110,030
106,768
20,000
10,000
151,674
100,080
117,278
113,801
21,318
10,659
46,480
30,000
-
31,976
-
529,882
US$ 564,786
9,296
369,547
￦
1) Korea Development Bank
2) National Agricultural Cooperative Federation
12. Long-term liabilities
Bonds
The non-guaranteed bonds issued and outstanding as of December 31, 2006 and 2007 are as follows:
Korean won in millions
Series
16th
17-2nd
18th
19-1st
19-2nd
20th
21st
22nd
23-1st
23-2nd
24-1st
24-2nd
25-1st
25-2nd
26-1st
26-2nd
27-1st
27-2nd
28th
29-1st
29-2nd
Issuing
date
04.02.05
04.05.24
04.09.23
04.11.12
04.11.12
05.03.08
05.09.15
05.11.24
06.04.17
06.04.17
06.09.25
06.09.25
07.02.08
07.02.08
07.05.25
07.05.25
07.09.17
07.09.17
07.10.31
07.11.12
07.11.12
Maturity Annual interest rate
in 2007
07.02.05
07.05.24
07.09.23
4.00%
07.11.12
4.00%
09.11.12
4.00%
08.03.08
4.00%
08.09.15
4.00%
08.11.24 3M Libor+0.95%
09.04.17
4.00%
11.04.17
5.00%
09.09.25
4.00%
11.09.25
4.00%
10.02.08
5.00%
12.02.08
5.00%
10.05.25
5.00%
12.05.25
5.00%
10.09.17
5.00%
12.09.17
5.00%
10.10.31
6.01%
10.11.12
5.00%
12.11.12
5.00%
Less discount on bonds
Less current portion of bonds, net of discount on bonds
2006
￦
200,000
100,000
200,000
180,000
120,000
300,000
200,000
185,920
150,000
150,000
150,000
250,000
2,185,920
(37,717)
2,148,203
(677,595)
￦ 1,470,608
2007
￦
U.S. dollars
in thousands
(Note 2)
2007
- ￦
120,000
127,904
300,000
319,761
200,000
213,174
187,640
200,000
150,000
159,881
150,000
159,881
150,000
159,881
250,000
266,468
200,000
213,174
100,000
106,587
100,000
106,587
100,000
106,587
150,000
159,881
50,000
53,293
200,000
213,174
140,000
149,222
40,000
42,635
2,587,640
2,758,090
(42,076)
(44,848)
2,545,564
2,713,242
(685,437)
(730,587)
￦ 1,860,127 US$ 1,982,655
FINANCIAL SECTION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(December 31, 2006 and 2007)
Korean won denominated long-term loans
Korean won denominated long-term loans as of December 31, 2006 and 2007 are as follows:
Korean won in millions
Annual interest rate
in 2007
Long-term loans from:
KDB
Hana Bank
Kookmin Bank
Kyobo Life Insurance
NACF
Korea Life Insurance
Samsung Life Insurance
4.15% ~ 5.22%,
KDB Bond+0.77%
6.47%
3.00%
6.90%
CD Rate+0.99~1.30%
6.90%
5.50%
2006
￦
Less current portion
￦
121,480
23,830
59,204
204,514
(72,965)
131,549
2007
￦
￦
313,218
32,090
15,011
30,000
250,000
40,000
40,000
720,319
(80,234)
640,085
U. S. dollars
in thousands
(Note 2)
2007
US$ 333,849
34,204
16,000
31,976
266,468
42,635
42,635
767,767
(85,519)
US$ 682,248
Foreign currency denominated long-term loans
Foreign currency denominated long-term loans as of December 31, 2006 and 2007 are as follows:
Korean won in millions
Annual interest rate
in 2007
Foreign currency
denominated
long-term loans from:
KDB
NACF 1)
EIBK 2)
Hana Bank
Washington Mutual
KALF
3M Libor+0.57~1.69%
3M Libor+0.6~1.00%
3M Libor+1.65%
3M Libor+0.6~2.2%
Federal Housing Int.
3M Libor+1.3%
Less current portion
1) National Agricultural Cooperative Federation
2) The Export-Import Bank of Korea
2006
￦
629,503
204,280
175,575
59,282
69
66,191
1,134,900
(165,930)
￦ 968,970
U. S. dollars
in thousands
(Note 2)
2007
2007
783,856
188,206
152,174
50,825
61
47,113
1,222,235
(170,469)
￦ 1,051,766
US$ 835,489
200,603
162,198
54,173
65
50,216
1,302,744
(181,697)
US$ 1,121,047
￦
KOREAN AIR ANNUAL REPORT 2007
090 · 091
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(December 31, 2006 and 2007)
Long-term obligations under installment purchases
Long-term obligations under installment purchases related to aircraft and engines as of December 31, 2006 and
2007 are as follows:
Korean won in millions
Annual interest rate
in 2007
Installment purchases
from:
Wilmington
1Y Libor+0.75~0.85%
3.96%~5.16%
3M Libor+0.05~0.69%
KE Apollo
2006
￦
￦
Accumulated losses on
valuation of fixed liabilities 1)
591,239
88,394
679,633
2007
￦
￦
16,492
696,125
(97,151)
598,974
Less present value discounts
Less current portion,
net of present value discounts
￦
(52,539)
546,435
￦
U. S. dollars
in thousands
(Note 2)
2007
551,060
49,562
600,622
US$ 587,358
US$ 52,826
640,184
11,037
611,659
(57,880)
553,779
11,764
651,948
(61,692)
590,256
(297,489)
256,290
(317,084)
US$ 273,172
1) The amounts as of December 31, 2006 and 2007 represent accumulated losses on valuation of derivative transactions according
to the interpretation of Korea Accounting Standards 53-70.
The Company received payment guarantees amounting to US$192 million from KDB related to the above longterm obligations under installment purchases as of December 31, 2007.
Obligations under capital leases
Obligations under capital leases as of December 31, 2006 and 2007 are as follows:
Korean won in millions
Aircraft/Engines:
KALF
KE Cayman
Leasing Limited
KE Export Leasing
KE August Ltd.
KE Octavius Ltd.
Computing equipment:
IBM Korea, Inc.
Less current portion
U. S. dollars
in thousands
(Note 2)
Annual interest rate
in 2007
2006
2007
2007
3M Libor+0.60~3.00%
6M Libor+1.60~1.75%
3M JPY Libor+0.15%
4.55% ~ 8.45%
￦ 2,030,085
￦ 1,733,506
US$ 1,847,693
114,417
360,964
-
100,034
338,935
146,428
294,595
106,624
361,261
156,073
314,000
1,038
2,506,504
(362,155)
￦ 2,144,349
2,613,498
(406,418)
￦ 2,207,080
2,785,651
(433,189)
US$ 2,352,462
3M JPY Libor+1.39~2.20%
4.99%~5.35%
3M Libor+0.44~0.54%
3M Libor+0.63~0.70%
FINANCIAL SECTION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(December 31, 2006 and 2007)
The Company has guaranteed the amounts of US$1,841 million and JPY 6,452 million to KE Export Leasing and
other financial institutions on behalf of KALF and other parties in connection with capital and operating lease agreements as of December 31, 2007.
Minimum lease payments and present value of long-term obligations under installment purchases and capital leases as
of December 31, 2007 are as follows:
U. S. dollars
in thousands
(Note 2)
Korean won in millions
Less than 1 year
More than 1 year to 5 years
More than 5 years
Present value
Long-term
obligation
under
installment
purchases 1)
￦
329,051
271,570
￦ 600,621
￦
542,742
Obligation
under
capital leases
￦
539,818
1,805,566
769,421
￦ 3,114,805
￦ 2,613,498
Total
Total
868,869
2,077,136
769,421
￦ 3,715,426
￦ 3,156,239
US$ 926,102
2,213,959
820,103
US$ 3,960,164
US$ 3,364,143
￦
1) Accumulated losses on valuation of long-term liabilities related to the interest rate swap contracts amounting to ￦11,307 million were excluded.
Guaranteed loans
The Company has agreed to assume certain guaranteed liabilities of Hanjin Shipping Co., Ltd. with KEB and other
financial institutions (“Guaranteed loans”), pursuant to the Government Guidelines for the Rationalization of the
Marine Industry. The aggregate amount of guaranteed loans assumed from Hanjin Shipping Co., Ltd. was
￦159,933 million. The guaranteed loans accrue no interest, and are payable in equal installments over 20 years. In
accordance with the repayment schedule, the Company made its first installment payment in 2003 and final installment will be due in 2017. The outstanding balance of guaranteed loans as of December 31, 2006 and 2007 are as follows:
U. S. dollars
in thousands
(Note 2)
Korean won in millions
2006
Guaranteed loans from:
KDB
Woori Bank
Korea Asset Management Corp.
Hanshin Federation of savings Bank
Kookmin Bank
Shinhan Bank
Daegu Bank
KEB
Heungkuk Life Insurance Co., Ltd.
Daehan Fire & Marine
Insurance Co., Ltd.
￦
￦
Less present value discounts
Less current portion,
net of present value discounts
￦
￦
28,779
18,850
1,213
1,452
1,083
4,841
3,559
46,862
9,648
998
117,285
(46,518)
70,767
(9,931)
60,836
2007
￦
￦
￦
￦
26,162
17,137
1,103
1,320
985
4,401
3,236
42,601
8,771
2007
US$
27,885
18,266
1,175
1,407
1,050
4,690
3,449
45,408
9,349
907
106,623
(39,661)
66,962
967
US$ 113,646
(42,273)
71,373
(9,930)
57,032
US$ (10,584)
US$ 60,789
KOREAN AIR ANNUAL REPORT 2007
092 · 093
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(December 31, 2006 and 2007)
Asset-backed securitization loans
The asset-backed securitization (“ABS”) loans of the Company are obtained from various special purpose entities,
which entailed the sales of the beneficial rights of receiving a certain amount of cash flows from the future receivables of the Company to several financial institutions. Details of the ABS loans as of December 31, 2006 and 2007 are
as follows:
Annual interest rate
in 2007
KAL-Japan 2nd ABS
KAL-Japan 3rd ABS
Less current portion
0.72%
1.2%
U. S. dollars
in thousands
(Note 2)
Korean won
in millions
2006
65,563
65,563
(52,403)
￦
13,160
￦
2007
14,027
241,948
255,975
(124,906)
￦ 131,069
￦
2007
14,951
257,886
272,837
(133,134)
US$ 139,703
US$
The maturity of long-term liabilities
The maturity of long-term liabilities as of December 31, 2007 is as follows:
Korean won in millions
Long-term
Foreign obligations
Korean won currency
under Obligations
Asset-backed
denominated denominated installment under capital Guaranteed securitization
loans
loans
purchases1)
leases
loans
loans
Total
￦ 80,234 ￦170,469 ￦329,051 ￦406,418 ￦ 10,662 ￦124,906 ￦1,809,380
87,345
437,734
153,076
412,741
10,662
112,237 1,633,795
320,923
132,195
118,495
435,635
10,662
18,832 1,826,742
28,535
108,466
352,622
10,662
900,285
27,279
108,467
298,182
10,662
734,590
Year ended
Bonds
Dec 31, 2008 ￦687,640
Dec 31, 2009
420,000
Dec 31, 2010
790,000
Dec 31, 2011
400,000
Dec 31, 2012
290,000
Jan 1, 2013 and
thereafter
176,003
264,905
707,899
53,313
- 1,202,120
￦ 2,587,640 ￦ 720,319 ￦1,222,236 ￦ 600,622 ￦ 2,613,497 ￦ 106,623 ￦ 255,975 ￦8,106,912
1) Accumulated losses on valuation of long-term liabilities related to the interest rate swap contracts amounting to ￦11,037 million
were excluded.
13. Commitments and
contingencies
Guarantees received
As of December 31, 2007, Seoul Guarantee Insurance Company has provided guarantees of ￦32,574 million on the
behalf the Company for compliance with various contracts, bidding and warranties.
Agreements for bank overdraft, letters of credit and credit lines
As of December 31, 2007, the Company has a bank overdraft agreement for up to ￦5,000 million, opening of letters
of credit for up to US$5 million and B2B marketplace agreements for up to ￦30,000 million with Woori Bank. The
Company has also a credit line agreement for up to ￦240,000 million with Kookmin Bank and US$200 million with
Hana Bank as of December 31, 2007.
As of December 31, 2007, the Company has 2 outstanding promissory notes pledged as collateral to creditors and
guarantors.
FINANCIAL SECTION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(December 31, 2006 and 2007)
Pending litigations
As of December 31, 2007, various claims, lawsuits and complaints, arising from airline services operations are pending against the Company. Management believes that the Company has adequate insurance coverage against these
claims and that the ultimate outcome of these cases will not have a material adverse effect on the financial performance and position of the Company.
For an alleged anti-trust violation relating to the Company and other parties colluding on price fixing of aircargo services, the Company made a plea to the United States Department of Justice on August 1, 2007 for the payment of
fines totaling US$300,000 thousand (￦278,700 million), to be paid in annual installments up to 2012 with interest
rate of 4.30% per annum. The fines were charged to current operations as other expenses for the year ended
December 31, 2007. The related outstanding balance of ￦234,550 million as of December 31, 2007 was accounted for
as other accounts payable of ￦46,910 million and long-term non-trade payable of ￦187,640 million.
In connection with the above anti-trust violation, various other parties also filed lawsuits against the Company claiming damages at the United States District Court for the Eastern District of New York which are still pending. In addition, the Company is currently under investigation by the European Commission, Australian Competition and
Consumer Commission and New Zealand Commerce Commission for allegedly colluding on price fixing. As of balance sheet date, the ultimate outcome of this investigation cannot be presently determined.
New aircraft purchase commitments
The Company has entered into various aircraft purchase contracts with aircraft manufacturers, including The
Boeing Company. The amount of such contracts is approximately US$6,458 million as of December 31, 2007.
Interest rate swap contracts
The Company has entered into interest rate swap contracts with Citibank Korea Inc. and other financial institutions
in order to hedge against interest rate fluctuation related to long-term obligations under installment purchases of
aircraft. The details of the contracts outstanding as of December 31, 2007 are as follows:
Notional amount
Terms
:
:
Swap contract period
:
US$378,403 thousand
Pay floating interest rate of Libor + 0.75 ~ 0.85 % and
receive fixed interest rate of 7.29 ~ 9.12%
February 28, 1991 to January 15, 2010
Interest expense from the long-term obligations amounting to ￦7,941 million for the year ended December 31, 2007
has been offset against the gain on settlement of interest rate swap contracts. Loss on valuation of interest rate swap
contracts and gain on valuation of long-term obligations under installment purchases, each amounting to ￦725 million, were recognized as non-operating expense and non-operating income, respectively, for the year ended December
31, 2007.
Foreign currency option contracts
In order to hedge the exposure of changes in exchange rates related to foreign currency liabilities, the
Company has entered into foreign currency zero-cost collar option contracts, which consist of call-options in
long positions and put-options in short positions, with Development Bank of Singapore (“DBS”) and other
financial institutions. The terms of outstanding foreign currency zero-cost collar option contracts as of
December 31, 2007 are as follows (United States dollars in thousands):
KOREAN AIR ANNUAL REPORT 2007
094 · 095
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(December 31, 2006 and 2007)
Counterparty
DBS
KDB
KEB
JP Morgan
Notional
amount
US$
120,000
60,000
60,000
95,000
70,000
70,000
120,000
US$
595,000
Unsettled
amount
US$ 120,000
60,000
60,000
60,000
60,000
60,000
120,000
US$ 540,000
Contract
currency
KRW
KRW
KRW
KRW
KRW
KRW
KRW
Contract date
Settlement date
Nov 6, 2006
Nov 20, 2006
Nov 20, 2006
May 10, 2007
Oct 5, 2007
Oct 12, 2007
Nov 6, 2006
Jan, 2008 ~ Dec, 2008
Jan, 2008 ~ Dec, 2008
Jan, 2009 ~ Dec, 2009
June, 2007 ~ Dec, 2008
Nov, 2007 ~ Dec, 2008
Nov, 2007 ~ Dec, 2008
Jan, 2009 ~ Dec, 2009
In accordance with the foreign currency option contracts, the Company has recognized a gain and a loss from
settlement of foreign currency option contracts amounting to ￦428 million (US$456 thousand) and ￦59
million (US$63 thousand), respectively, for the year ended December 31, 2007. Unrealized valuation gain recognized arising from the foreign currency option contracts amounted to ￦2,534 million (US$2,701 thousand) for the year ended December 31, 2007.
Oil-price option
In order to hedge the exposure to changes in oil prices related to purchase of aircraft fuel, the Company has entered
into oil price three-way collar option contracts, which consist of call-options in long positions and put-options in
short positions that are based on West Texas Intermediate, with Merrill Lynch and other financial institutions. The
terms of the outstanding oil price option contracts as of December 31, 2007 are as follows (barrels in thousands):
Counterparty
Merrill Lynch
Lehman Brothers
KDB
Contracted
quantities
600
300
300
Unsettled
quantities
200
200
300
Contract date
Settlement date
Aug 23, 2007
Nov 27, 2007
Aug 23, 2007
Sep, 2007 ~ Feb, 2008
Dec, 2007 ~ Feb, 2008
Jan, 2008 ~ Mar, 2008
The Company accounts for its fuel derivative instruments as cash flow hedges in cases where the derivative
instruments meet the requirements of Korea Accounting Standards 53-70 Accounting for Derivative
Instruments.
In relation to the oil price option contracts that qualified for cash flow hedge accounting treatment, the
Company recorded a gain of ￦2,811 million from the settlement of the oil price option contracts as operating
expense for the year ended December 31, 2007. The unsettled oil price option contracts as of December 31,
2007 are all qualified for cash flow hedge accounting treatment. As a result, unrealized gains of ￦1,321 million
arising from fair value adjustments on the unsettled oil price option contracts were recorded in other comprehensive income, all of which will be settled within a year from the balance sheet date.
As of December 31, 2007, there was no amount of hedge ineffectiveness to be credited or charged to current
operations.
Changes in the fair value of derivative instruments relating to the above derivative instrument transactions
during the year ended December 31, 2007 are summarized as follows:
FINANCIAL SECTION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(December 31, 2006 and 2007)
Korean won
in millions
U. S. dollars in thousands
Period ended
Jan. 1
Current assets:
Interest rate swapUS$
Foreign currency
option
Oil-price option
US$
Current liabilities:
Foreign currency
option
US$
Oil-price option
US$
Fixed assets:
Interest rate swapUS$
Settled
Gain on
valuation
8,416 US$(6,745) US$
Accumulated
other
Loss on comprehensive Current
valuation income
portion
42 US$
- US$
Dec. 31
Dec. 31
- US$ 5,940 US$ 7,653 ￦
7,172
63
(63)
1,858
85
(85)
8,564 US$(6,893) US$ 1,900 US$
1,858
1,743
1,998
1,998
1,822
- US$ 1,998 US$ 5,940 US$ 11,509 ￦ 10,737
1,244 US$ (363) US$ (881) US$
2,807
(2,807)
4,051 US$(3,170) US$ (881) US$
- US$
- US$
- US$
- US$
- US$
- ￦
1,134
- US$ 1,134 ￦
1,065
1,065
9,325 US$
- US$
- US$(5,940) US$ 4,112 ￦
3,864
- US$ 727 US$
Operating lease contracts
The Company has entered into operating lease agreements to lease 30 aircrafts and certain aircraft parts from
KALF, Gecas Technical Services Ltd. and other leasors. The Company has also entered into an operating lease
agreement for using the cargo terminal at JFK international airport in the United States with New York City
Industrial Development Agency (“IDA”). As of December 31, 2007, the schedule of lease payments on these
agreements is summarized as follows:
U. S. dollars in thousands
2008.1.1 ~ 2008.12.31
2009.1.1 ~ 2009.12.31
2010.1.1 ~ 2010.12.31
2011.1.1 ~ 2011.12.31
2012.1.1 ~ 2012.12.31
2013.1.1 and after
US$
US$
176,471
119,580
102,079
83,888
48,419
126,253
656,690
Korean won equivalent
in millions
￦
￦
165,565
112,190
95,770
78,704
45,427
118,450
616,106
KDB has provided a guarantee of US$25 million on behalf of the Company for the aircraft operating lease
agreements as of December 31, 2007. In addition, the Company has opened letters of credit at HSBC in the
aggregate amount of US$82.5 million in connection with the operating lease agreement for using the cargo
terminal at JFK international airport in the United States with IDA as of December 31, 2007.
KOREAN AIR ANNUAL REPORT 2007
096 · 097
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(December 31, 2006 and 2007)
The Company, including Air France KLM and other users of the JFK Airport in New York (collectively “the
JFK Users”), has provided a joint guarantee of US$388 million to IDA for the industrial revenue bonds (“IR
Bonds”) issued by the IDA. The IR Bonds were issued for the purpose of financing the construction of the new
terminal one of JFK Airport (“Terminal One”). In return, IDA will redeem its IR Bonds through the collection
of lease payments from the JFK Users. Terminal One Group Association (“TOGA”) was established by the
JFK Users to operate and administer the Terminal One, including collection of the above mentioned lease
payments and making schedule repayment to IDA in respect of the IR Bonds. In accordance to an Association
Agreement entered into between TOGA and
the JFK Users, TOGA has been granted the right to collect additional lease payments from the JFK Users, in
the event of a shortage of funds after making such schedule repayment to IDA, to cover its operating expenses.
In December 2007, the Company incorporated GrandStar Cargo Int’l Airlines Co., Ltd. (“GCIAC”) with an
investment of US$2.4 million through a joint venture with Sinotrans Air Transportation Development, one of
China’s biggest logistics companies. The Company plans to inject an additional investment of US$41.45 million into GCIAC with the eventual equity ownership of 47%.
At the board of directors’ meeting on November, 2007, it was resolved that the Company will invest ￦20,000
million for the incorporation of a low cost carrier.
14. Pledged assets
A substantial portion of the property, aircraft and equipment as of December 31, 2007, has been pledged as
collateral for certain borrowings from banks and other financial institutions, are as follows:
Korean won in millions, US$ and NLG in thousands
KDB
KEB
Kookmin Bank
EIBK
NACF
Hana Bank
Wilmington Trust
Amount
US$
1,873,085
NLG
￦
US$
KRW
￦
US$
￦
US$
￦
US$
1,143
1,080,900
25,956
8,000
60,544
354,559
447,051
96,850
45,500
71,069
Collateral
Land, building, aircraft
and engines
Land and building
Land, building and facility
Aircraft and engines
Land and building
Land, building and
facility usage rights
Aircraft and engines
Aircraft and engines
Aircraft and engines
Aircraft and engines
Aircraft and engines
FINANCIAL SECTION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(December 31, 2006 and 2007)
As of December 31, 2007, the following investment securities and equity method investments are pledged as collateral (Korean won in millions):
Number of
shares
Held-to maturity securities:
National housing bond
- ￦
450
-
941
313,950
34,000
9,805
899,433
910,629
National housing bond
Equity method investments:
Hanjin Shipping Co., Ltd.
Hanjin Energy Co., Ltd.
Book
value
￦
15. Severance and
retirement benefits
Financial institution
Defense Procurement Contract guarantee
Agency
Incheon Airport
Import customs
Customs
clearance guarantee
KEB
Hana Bank
Guaranteed loans
Borrowing guarantee
Changes in severance and retirement benefits for the years ended December 31, 2006 and 2007 are summarized as
follows:
Korean won in millions
Beginning balance
Provisions
Transfer to affiliates
Payments
Deposits for severance and retirements
benefits
Accumulated prepayment to KNPC
Net balance
16. Stockholders’ equity
Purpose
U. S. dollars in thousands
(Note 2)
2006
￦
774,535
150,162
(453)
(133,047)
791,197
2007
￦
791,197
128,649
2,467
(144,976)
777,337
2007
US$ 843,314
137,124
2,628
(154,526)
828,540
(112,492)
(17,235)
￦
661,470
(298,165)
(14,063)
￦
465,109
(317,805)
(14,989)
US$ 495,746
Preferred stock
The preferred stock is non-participating, non-cumulative and non-voting shares, which is entitled to receive cash
dividend equal to that declared for common stock plus an additional one percent.
Capital surplus
Capital surplus as of December 31, 2006 and 2007 consists of the following:
Korean won in millions
Paid-in capital in excess of par value
Asset revaluation surplus
2006
191,095
2,815,926
￦ 3,007,021
￦
U. S. dollars in thousands
(Note 2)
2007
190,823
2,815,926
￦ 3,006,749
￦
2007
US$ 203,393
3,001,413
US$ 3,204,806
KOREAN AIR ANNUAL REPORT 2007
098 · 099
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(December 31, 2006 and 2007)
Paid-in capital in excess of par value and asset revaluation surplus may not be utilized for cash dividend, but may
used to offset a future deficit, if any, or may be transferred to capital stock.
Retained earnings
Retained earnings as of December 31, 2006 and 2007 consist of the following:
Korean won in millions
2006
Appropriated retained earnings:
Legal reserve
Reserve for financial position improvement
Reserve for facility usage
Reserve for foreign currency fluctuation
Reserve for research and manpower
development
Unappropriated retained earnings
￦
4,500
69,700
500,000
-
574,200
479,592
￦ 1,053,792
U. S. dollars in thousands
(Note 2)
2007
￦
5,500
69,700
620,000
100,000
130,000
925,200
129,030
￦ 1,054,230
2007
US$
5,862
74,292
660,840
106,587
138,563
986,144
137,529
US$ 1,123,673
Legal reserve
In accordance with the Korean Commercial Code, an amount equal to at least 10% of cash dividends is required to
be appropriated as a legal reserve until the reserve equals 50% of paid-in capital. The legal reserve may not be utilized for cash dividend, but may used to offset a future deficit, if any, or may be transferred to capital stock.
Reserve for financial position improvement
The Korean Financial Control Regulation for listed companies had required that an amount equal to at least 10% of
net income, plus a 50% of net gain, if any, on extraordinary disposal of property, plant and equipment (after related
income taxes), be appropriated as reserve for improvement of financial position until the ratio of stockholders’ equity to total assets equals 30%. Effective from December 2007, such reserve is no longer required by the revised TILL.
Reserve for facility usage
The reserve for facility usage is voluntary in nature and is not restricted; this reserve may be used for dividends or to
offset a deficit, if any.
Reserve for foreign currency fluctuation
The reserve is voluntary reserve , which has no restrictions.
Research and man power development reserve
Pursuant to the Korean Tax Incentives Limitation Law, the reserve for research and human development reserve are
provided in order to obtain tax benefits with respect to the year for which the appropriations are proposed. These
reserves may be utilized for cash dividends after the expiration of specified grace period.
Treasury stock
As of December 31, 2007, the Company has 4,437,327 shares of common stock and 11,869 shares of preferred stock
held as treasury stock with carrying value of ￦65,264 million and ￦135 million, respectively.
FINANCIAL SECTION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(December 31, 2006 and 2007)
17. Income taxes
The Company is subject to corporate income taxes, including resident surtax, at the aggregate rates of 14.3%
on taxable income up to ￦100 million and 27.5% on taxable income in excess of ￦100 million.
Reconciliations of income before income taxes for financial reporting purposes and taxable income for corporate income tax reporting purposes for the years ended December 31, 2006 and 2007 are summarized as
follows:
Korean won in millions
2006
2007
Temporary Non-temporary Temporary Non-temporary
difference
difference
difference 1)
difference
Additions:
Entertainment expenses
in excess of tax limit
Accrued severance and
retirement benefits
Depreciation
Present value discount on
guaranteed loans
Provision for temporary
depreciation
Unredeemed mileage liabilities
Gain on valuation of long
term investment securities
Reserve for research
and human development
Other
￦
￦
Deductions:
Accrued severance and
retirement benefits
Foreign currency translation
adjustment debit
Guaranteed loan
Discount on aircraft purchased
Equity method investments
Gain on valuation of long
term investment securities
Reserve for research
and human development
Gain on valuation of
other non-current assets
Other
- ￦
11,912 ￦
- ￦
12,274
2,722
49,582
-
47,991
-
7,206
-
6,858
-
15
23,596
-
20
23,783
-
4,349
-
-
10,486
8,851
20,763 ￦
6,000
84,652 ￦
296,734
319,494
488,289
575,759 ￦
-
￦
47,656
8,093
12,953
59,019
-
21,310
6,072
11,152
73,881
-
-
4,349
6,257
-
130,000
-
-
-
257,721 ￦
2,829
7,178 ￦
4,823
80,907
204,402 ￦
-
KOREAN AIR ANNUAL REPORT 2007
100 · 101
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(December 31, 2006 and 2007)
Significant changes in cumulative temporary differences and deferred income tax assets and liabilities for the year
ended December 31, 2007 are as follows:
Korean won in millions
2006
Beginning
balance
Deductible temporary differences:
Severance and retirement
benefits
Depreciation
Foreign currency translation
adjustment
Guaranteed loan
Discount in aircraft purchased
Unredeemed mileage liabilities
Gain from assets contributed
Other
Taxable temporary differences:
Provision for temporary
depreciation
Discount on guaranteed loan
Reserve for research and
human development
Gain on valuation of long- term
investment securities
Equity method investments
Gain on valuation of other assets
Total
Temporary difference
unrecognized 1)
Temporary difference recognized
Tax rate
Deferred income tax asset, net
￦
2007
Increase
376,485 ￦
116,318
135,924 ￦
-
240,561
164,309
28,492
8,096
13,663
186,175
42,319
213,603
192,659
54,322
63,589
971,362
- ￦
-
(20) ￦
(6,857)
(38)
(39,661)
(130,000)
-
(6,000)
(124,000)
(32,502)
(23,170)
(232,249)
930,403
(10,486)
(99,565)
(7,305)
(117,356)
(12,878)
(42,988)
(122,736)
(7,305)
(336,728)
634,634
70,811
8,096
227,266
168,876
54,322
140,478
1,162,652
￦
Ending
balance
Decrease
(59) ￦
(46,518)
(303,291)
627,112
27.5%
￦ 172,455
- ￦
47,991
23,783
(76,889)
(5,115)
(173,460)
461,174
27.5%
￦ 126,823
1) The Company did not recognize deferred income tax assets for deductible temporary differences, arising from equity method investments amounting to ￦221,129 million and gain from assets contributed amounting to ￦54,322 million, in consideration of the
uncertainty in realizing those deductible temporary differences in the future. In addition, the Company did not recognize deferred
income tax liabilities for additional temporary differences arising from the revaluation of land amounting to ￦101,991 million, in consideration that the Company has no firm commitment to dispose of the land in the foreseeable future.
FINANCIAL SECTION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(December 31, 2006 and 2007)
Details of gross deferred income tax assets and liabilities as of December 31, 2007 are as follows:
Korean won in millions
Temporary
differences
Temporary difference:
Accrued severance and retirement benefits
Depreciation
Foreign currency translation adjustment debit
Discount on aircraft purchased
Unredeemed mileage liabilities
Provision for temporary depreciation
Present value discount on guaranteed loan
Reserve for research and human development
Gain on valuation of long-term investment
securities
Equity method investments
Gain on valuation of derivatives
Gain on valuation of other non-current asset
Others
Deferred income tax assets
Deferred income tax liabilities
Deferred income tax assets, net
￦
240,561
164,309
42,319
213,603
192,659
(38)
(39,661)
(124,000)
Deferred income tax assets
(liabilities)
Current
Non-current
￦
-
(42,988)
(343,865)
(1,822)
(5,483)
165,579
1,031
1,348
(317)
1,031
￦
￦
66,154
45,185
11,638
58,741
52,981
(11)
(10,907)
(34,100)
(11,822)
(94,563)
(501)
(1,508)
44,504
279,203
(153,411)
￦ 125,792
The major components of provision for income taxes for the years ended December 31, 2006 and 2007 are as follows:
Korean won in millions
Current income taxes
Changes in deferred income tax
arising from temporary differences
Deferred income tax which is
credited (charged) directly to equity
Provision for income taxes
￦
2006
45,251
￦
58,411
￦
1,196
104,858
U. S. dollars in thousands
(Note 2)
2007
42,949
US$
45,633
￦
(7,036)
81,546
2007
45,779
48,639
US$
(7,500)
86,918
KOREAN AIR ANNUAL REPORT 2007
102 · 103
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(December 31, 2006 and 2007)
Deferred income tax which is charged (credited) directly to equity for the years ended December 31, 2006 and 2007
are as follows:
U. S. dollars in thousands
(Note 2)
Korean won in millions
2006
Gain on valuation of long-term
investment securities
Equity adjustment arising from
equity method investments
Gain on valuation of
derivative instruments
Gain on valuation of
other non-current assets
Total
Income tax rate
Charged (credited) directly
to equity
￦
￦
2007
(4,349)
￦
2007
10,486
US$
11,176
-
7,795
8,309
-
1,822
1,942
(4,349)
27.5%
5,483
25,586
27.5%
5,844
27,271
27.5%
1,196
￦
(7,036)
US$
(7,500)
The effective income tax rates for the years ended December 31, 2005 and 2006 are as follows:
Korean won in millions
Income before income taxes
Provision for income taxes
Effective income tax rate
18. Comprehensive
income
￦
2006
487,870
104,858
21.49%
￦
U. S. dollars in thousands
(Note 2)
2007
92,286
81,547
88.36%
US$
2007
98,365
86,918
88.36%
The Company’s comprehensive income for the years ended December 31, 2006 and 2007 are computed as follows:
Korean won in millions
Net income
Other comprehensive income:
Gain (loss) on valuation of
long-term investment securities
Gain (loss) on valuation of
derivative instruments
Equity adjustment arising from
equity method investments
Gain on valuation of
other non-current assets
Comprehensive income
￦
￦
￦
2006
383,012
￦
U. S. dollars in thousands
(Note 2)
2007
10,740
US$
2007
11,448
(3,153)
7,602
8,103
(2,534)
3,855
4,109
(6,843)
14,294
15,235
(12,530)
370,482
￦
￦
3,976
29,726
40,467
US$
US$
4,237
31,684
43,132
FINANCIAL SECTION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(December 31, 2006 and 2007)
19. Per share amounts
The Company’s per share amounts for the years ended December 31, 2006 and 2007 are computed as follows:
U. S. dollars in thousands
(Note 2)
Korean won in millions
￦
Net income
Preferred stock dividends
Net income attributable to
common stock
Weighted-average number of shares of
common stock outstanding (in units)
Earnings per share
(Korean won and US$ in units)
2006
383,012
(273)
￦
2007
10,740
(752)
US$
2007
11,448
(802)
382,738
9,987
10,646
66,852,109
67,534,304
67,534,304
5,725
148
0.16
The weighted-average number of shares of common stock outstanding for the years ended December 31, 2006 and
2007 have been calculated by deducting treasury stock and preferred stock dividends in accordance with the annual
stipulated dividend rate in 2006 and 2007 on a pro rata basis.
20. Dividends
The 2006 dividends were approved at the ordinary stockholders’ meeting held on March 16, 2007 and the 2007 dividends are proposed for an approval at the annual ordinary stockholders’ meeting to be held on March 21, 2008.
Details of dividends declared for the years ended December 31, 2006 and 2007 are as follows:
Number of shares (A)
Dividend per share (rate) (B)
(Korean won in units)
Dividends (A×B)
(Korean won in millions)
Number of shares (A)
Dividend per share (rate) (B)
(Korean won in units)
Dividends (A×B)
(Korean won in millions)
2006
Common stock
Cash
Stock
dividends
dividends
66,852,109
66,852,109
￦ 100 (2%) ￦
￦
6,685 ￦
50 (1%) ￦ 150 (3%) ￦
3,343 ￦
2007
Common stock
Cash
Stock
dividends
dividends
67,534,304
67,534,304
￦ 500 (10%) ￦
￦
33,767 ￦
Preferred stock
Cash
Stock
dividends
dividends
1,397,308
1,367,308
205 ￦
68
Preferred stock
Cash
Stock
dividends
dividends
1,397,308
1,367,308
(-%) ￦ 550 (11%) ￦
- ￦
50 (1%)
752 ￦
(-%)
-
KOREAN AIR ANNUAL REPORT 2007
104 · 105
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(December 31, 2006 and 2007)
The dividend payout ratio for the years ended December 31, 2006 and 2007 are as follows:
U. S. dollars in thousands
(Note 2)
Korean won in millions
2006
￦
10,302
￦
383,012
2.7%
Dividends (A)
Net income (B)
Dividend payout ratio (A/B)
2007
￦
34,519
￦
10,740
321.4%
2007
US$ 36,793
US$ 11,448
321.4%
The dividend yield ratio for the years ended December 31, 2006 and 2007 are as follows:
2006
Common
stock
Dividend per share (A)
(Korean won in units)
Market value per share at
balance sheet date (B)
(Korean won in units)
Dividend yield ratio (A×B)
21. Related party
disclosures
2007
Preferred
stock
Common
stock
Preferred
stock
￦
150 ￦
200 ￦
500 ￦
550
￦
35,450 ￦
0.4%
18,650 ￦
1.1%
76,800 ￦
0.7%
29,000
1.9%
The Company is the ultimate holding company for the following list of subsidiaries as of December 31, 2007.
1. Korea Airport Service Co., Ltd.
2. Hanjin Information Systems & Telecommunication Co., Ltd.
3. Topas Co., Ltd.
4. In-cheon International Airport Oiling Facility
5. KAL Hotel Network Co., Ltd.
6. Hanjin Travel Service Co., Ltd.
7. Jungseok Enterprise Co., Ltd.
8. Air Total Service Co., Ltd.
9. Korean Air Lease & Finance Co., Ltd.
10. Hanjin Int’l Corp.
11. Waikiki Resort Hotel, Inc.
12. Jedong Leisure Co., Ltd.
13. Hanjin Energy Co., Ltd.
Significant transactions which occurred in the ordinary course of business with related companies for the years
ended December 31, 2006 and 2007 are summarized as follows:
FINANCIAL SECTION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(December 31, 2006 and 2007)
Korean won in millions
2006
2007
Revenue/
other income
Expense
Hanjin Transportation
Co., Ltd.
￦ 1,672
Korean Airport Service
Co., Ltd.
209
Hanjin Travel Service
Co., Ltd.
31
Jungseok Enterprise
Co., Ltd
Hanjin Information Systems
& Telecommunication Co., Ltd.
281
Air Total Service Co., Ltd
2
In-cheon International Airport
Oiling Facility
Topas Co., Ltd.
18,705
KALF
7,638
S-oil corporation
Others
316
Total
￦ 28,854
￦
8,643
Revenue/
other income
￦
Expense
￦
1,494
9,957
224,400
300
239,257
11,787
64
16,382
817
-
883
27,954
25,783
228
8
-
29,127
25,966
13,458
20,219
7,729
6
623
30,671
23,499
236,820
244,052
21,411
860,812
12,426
20,672
253,559
55,197
￦ 641,238
￦
￦
The expense amount related to KALF incurred on capital leases consists of interest expense amounting to ￦109,184
million and operating lease payments amounting to ￦127,617 million, and revenues from KALF consist of interest
income from long-term loans and other income. The expense amount related to Korea Airport Service Co., Ltd.
consists of mainly charges incurred from aircraft refueling services.
The related account balances outstanding with related parties as of December 31, 2006 and 2007 are summarized as
follows:
Korean won in millions
2006
Receivable
Hanjin Transportation
Co., Ltd.
Korean Airport Service
Co., Ltd.
Hanjin Travel Service
Co., Ltd.
Jungseok Enterprise
Co., Ltd
Hanjin Information Systems
& Telecommunication Co., Ltd.
Air Total Service Co., Ltd.
Topas Co., Ltd.
KALF
S-oil Corporation
Others
Total
￦
126
2007
Payable
￦
Receivable
2,998
￦
20
Payable
￦
2,677
365
41,328
375
44,501
46
2,383
68
2,470
384
1
413
-
1
1,720
180,461
27
￦ 183,130
6,658
4,473
1,898
2,128,006
2,507
￦2,190,252
56
162,854
1
56
￦ 163,843
7,877
2,583
2,611
1,814,910
16,180
3,229
￦ 1,897,038
KOREAN AIR ANNUAL REPORT 2007
106 · 107
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(December 31, 2006 and 2007)
The receivables from KALF consist of long-term loans of ￦76,683 million, lease deposit of ￦71,620 million and
accrued income. Payables to KALF consist of lease liabilities of ￦1,421,039 million, foreign long-term debt of
￦47,113 million and accrued expenses. Related party receivables and payables from/to other than KALF are mainly
trade in nature.
The Company has guaranteed the repayment of various obligations of the following affiliated companies of the
Hanjin Group as of December 31, 2007 as follows:
Korean won in millions and US$ in thousands
Korea Airport Service Co., Ltd.
Hanjin Transportation Co., Ltd.
Hanjin Shipping Co., Ltd.
Others
Total
Guaranteed
amounts
￦
27,694
￦
17,008
￦
20,061
￦
20,768
￦
12,756
￦
16,914
US$
2,689
US$
666,522
￦
36,755
US$
50,000
￦
151,956
US$
719,211
Financial institutions
KEB
KDB
Woori Bank and others
KEB
KDB
Woori Bank and others
Fortune Star Maritime S.A
KSH INTL S.A. and others
KEB and others
HANA NYC
In addition to the above guarantees provided on the behalf of affiliated companies, the Company has provided
guarantees to KDB and other financial institutions to the extent of ￦23,797 million on behalf of Hanjin Heavy
Industries Co., Ltd.
The Company made a commitment to 10 institutional creditors (the “Creditors”) of Hanjin Energy Co., Ltd
(“HJE”) including Hana Bank, to secure the repayment for the principals and interests of HJE’s borrowings from
the Creditors by means of participation in paid-in capital increases of HJE, lending subordinated loans to HJE, or
other means in case HJE has insufficient funds for repayment.
The outstanding repayment guarantees provided by affiliated companies to other third parties for the Company’s
obligations as of December 31, 2007 are as follows:
FINANCIAL SECTION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(December 31, 2006 and 2007)
Korean won in millions
Hanjin Transportation Co., Ltd.
Korea Airport Service Co., Ltd.
Hanjin Shipping Co., Ltd.
Jungseok Enterprise Co., Ltd.
Total
￦
￦
￦
￦
￦
￦
￦
￦
￦
￦
￦
￦
￦
Guaranteed
amounts
55,382
34,010
44,877
55,382
34,010
44,877
55,382
34,010
45,784
55,382
34,010
44,877
537,983
Financial institutions
KEB
KDB
Woori Bank and others
KEB
KDB
Woori Bank and others
KEB
KDB
Woori Bank and others
KEB
KDB
Woori Bank and others
In addition to the above guarantees received from affiliated companies, the Company has received a guarantee from
Hanjin Heavy Industries Co., Ltd related to Guaranted loans from KEB and other financial institutions to the extent
of ￦134,269 million.
Payroll and severance and retirement benefits paid to major executives who have the authority and responsibility on
the Company’s business decision making for the year ended December 31, 2007, amounted to ￦1,837 million and
￦3,780 million, respectively.
22. Value added
information
The accounts and amounts which are required to be disclosed in connection with the calculation of the added value
of the Company’s operations for the years ended December 31, 2006 and 2007 are as follows:
Korean won in millions
2006
Salaries and wages
Severance and retirement
benefits
Employee fringe benefits
Taxes and dues
Rent
Depreciation
USD in thousands
2007
Selling and
Operating
Total
administrative
Total
expenses
expenses
￦ 917,712 ￦ 804,654 ￦ 191,900 ￦ 996,554
150,162
106,463
22,186
128,649
198,335
168,315
51,056
219,371
38,038
14,766
16,650
31,416
404,605
366,553
14,760
381,313
696,875
696,726
32,533
729,259
￦ 2,405,727 ￦ 2,157,477 ￦ 329,085 ￦ 2,486,562
US$2,564,195 US$2,299,592 US$ 350,762 US$2,650,354
KOREAN AIR ANNUAL REPORT 2007
108 · 109
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(December 31, 2006 and 2007)
23. Operating result
for the 4th quarter
(unaudited)
The Company’s operating results (unaudited) for the three months ended December 31, 2006 and 2007 are summarized as follows:
U. S. dollars in thousands
(Note 2)
Korean won in millions
Sales
Gross profit
Operating income
Net income
Earnings per share
(Korean won and U. S. dollars in units)
24. Segment information
2006
￦ 2,114,579
1,642,710
143,412
114,006
2007
￦ 2,301,964
1,817,890
128,643
(35,272)
2007
US$ 2,453,596
1,937,636
137,117
(37,595)
1,704
(525)
(1)
The Company defines its business segments by the nature of services and products as follows:
Airline
Aerospace
In-flight meals
Hotel and limousine
Products or services
Transporting passengers and cargoes
Maintaining aircraft and
manufacturing aircraft parts
Catering for in-flight meals
Land transport, accommodations
and others
Major customers
Individual customers
Boeing Commercial, defense
procurement agency, and others
Singapore Airlines Ltd.
and other foreign airlines
Individual customers
The following tables present the segment information of business segments and geographical segments as of
December 31, 2007 and 2006 and for the years then ended December 31, 2007 and 2006:
Business segments
Korean won in millions
In-flight
meals
Hotel &
limousine
Airline
Aerospace
Sales:
External sales
Inter-segment sales
December 31, 2007
External sales
Inter-segment sales
December 31, 2006
￦ 8,483,271
(7,099)
8,490,370
7,778,491
￦ (6,112)
￦ 7,784,603
￦ 235,082
(18,345)
253,427
211,578
￦ (11,772)
￦ 223,350
￦
58,399
(98,730)
157,129
51,297
￦ (89,168)
￦ 140,465
￦
Operating income (loss):
December 31, 2007
December 31, 2006
￦ 622,223
￦ 487,057
￦
￦
￦
￦
7,810
8,599
13,844
11,351
Total
￦
￦
35,237
(6,700)
41,937
36,504
(5,745)
42,249
￦ 8,811,989
(130,874)
8,942,863
8,077,871
￦ (112,796)
￦ 8,190,667
￦
￦
(7,040)
(9,652)
￦ 636,837
￦ 497,355
FINANCIAL SECTION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(December 31, 2006 and 2007)
Korean won in millions
Property, aircraft and
equipment, and
intangible assets:
December 31, 2007
December 31, 2006
Depreciation and
amortization:
December 31, 2007
December 31, 2006
In-flight
meals
Airline
Aerospace
￦10,506,820
￦10,355,208
￦ 393,531
￦ 382,762
￦
￦
58,892
63,803
￦ 724,201
￦ 687,900
￦
￦
￦
￦
6,257
6,573
12,749
11,994
Hotel &
limousine
Total
￦ 142,556
￦ 144,808
￦11,101,799
￦10,946,581
￦
￦
￦ 746,378
￦ 710,162
3,171
3,695
Geographical segments
Korean won in millions
Airline
Aerospace
In-flight meals
Hotel and
limousine
December 31,
2007
December 31,
2006
25. Supplementary
cash flow information
Domestic
Asia
America
Europe
Oceania
Total
￦1,269,581 ￦2,570,549 ￦2,634,458 ￦1,612,150 ￦ 396,533 ￦8,483,271
58,323
3,195
109,707
63,857
235,082
58,399
58,399
35,237
-
-
-
-
35,237
￦1,421,540 ￦2,573,744 ￦2,744,165 ￦1,676,007 ￦ 396,533 ￦8,811,989
￦1,337,014 ￦2,386,066 ￦2,527,212 ￦1,485,878 ￦ 341,701 ￦8,077,871
Significant non-cash investing and financing activities for the years ended December 31, 2006 and 2007 are as follows:
U. S. dollars in thousands
(Note 2)
Korean won in millions
2006
Transfer of available-for-sale securities
to equity method investments
Reclassification of current portion
of long-term liabilities
Transfer of construction-in-progress
to property, aircraft and equipment
Reclassification of current portion of obligations
under capital leases
Offset construction-in-progress
against advances received
Transfer of construction-in-progress
to other accounts receivable
Transfer of construction-in-progress
to intangible assets
Transfer of aircraft rotable parts to aircrafts
￦
￦
2007
11,000
￦
2007
-
US$
-
1,129,572
1,316,219
1,402,920
700,873
849,668
905,636
368,837
369,850
394,212
-
210,710
224,590
-
￦
65,506
32,510
10,802
US$
69,821
34,652
11,514
KOREAN AIR ANNUAL REPORT 2007
110 · 111
INTERNAL ACCOUNTING CONTROL
SYSTEM REVIEW REPORT
ERNST & YOUNG HAN YOUNG
Taeyoung Bldg., 3F~8F
10-2, Yeoido-dong, Youngdeungpo-gu
Seoul 150-777 Korea
Phone : 3787-6600
Fax
: 783-5890
Representative Director
Korean Air Lines Co., Ltd.
We have reviewed the accompanying management’s report on the operations of the internal accounting control system (“IACS”) of
Korean Air Lines Co., Ltd. Company (the “Company”) as of December 31, 2007. The Company’s management is responsible for design
and operations of its IACS, including the reporting of its operations. Our responsibility is to review the management’s IACS report and
issue a report based on our review. The management’s report on the operations of the IACS of the Company states that “based on its
assessment of the operations of the IACS as of December 31, 2007, the Company’s IACS has been effectively designed and has operated
as of December 31, 2007, in all material respects, in accordance with the IACS standards established by the IACS Operations
Committee.”
We conducted our review in accordance with the IACS review standards established by the Korean Institute of Certified Public
Accountants. These standards require that we plan and perform our review to obtain less assurance than an audit as to management’s
report on the operations of the IACS. A review includes the procedures of obtaining an understanding of the IACS, inquiring as to
management’s report on the operations of the IACS and performing a review of related documentation within limited scope, if necessary.
A company’s IACS consists of an establishment of related policies and organization to ensure that it is designed to provide reasonable
assurance on the reliability of financial reporting and the preparation of financial statements for external financial reporting purposes in
accordance with accounting principles generally accepted in the Republic of Korea. However, because of its inherent limitations, the
IACS may not prevent or detect material misstatements of the financial statements. Also, projections of any assessment of the IACS on
future periods are subject to the risk that IACS may become inadequate due to the changes in conditions, or that the degree of compliance with the policies or procedures may be significantly reduced.
Based on our review of the management’s report on the operations of the IACS, nothing has come to our attention that causes us to
believe that the management’s report referred to above is not presented fairly, in all material respects, in accordance with the IACS standards.
We conducted our review of the IACS in existence as of December 31, 2007, and we did not review the IACS subsequent to December
31, 2007. This report has been prepared for Korean regulatory purposes pursuant to the Act on External Audit for Joint-Stock
Companies, and may not be appropriate for other purposes or for other users.
February 27, 2008
This report is annexed in relation to the audit of the financial statements as of December 31, 2006 and the review of internal
accounting control system pursuant to Article 2-3 of the Act on External Audit for Stock Companies of the Republic of Korea.
FINANCIAL SECTION
REPORT ON THE OPERATIONS
OF THE INTERNAL ACCOUNTING CONTROL SYSTEM
To the Board of Directors and Audit Committee of
Korean Air Lines Co., Ltd.
I, as the Internal Accounting Control Officer (“IACO”) of Korean Air Lines Co., Ltd. (“the Company”), assessed the status of the design
and operations of the Company’s internal accounting control system (“IACS”) for the year ended December 31, 2007.
The Company’s management including the IACO is responsible for the design and operations of its IACS, as the IACO, assessed
whether the IACS has been effectively designed and has operated to prevent and detect any error or fraud which may cause any misstatement of the financial statements, for the purpose of establishing the reliability of financial reporting and the preparation of financial
statements for external financial reporting purposes. I, as the IACO, applied the IACS standards for the assessment of design and operations of the IACS.
Based on the assessment of the operations of the IACS, the Company’s IACS has been effectively designed and has operated as of
December 31, 2007, in all material respects, in accordance with the IACS standard.
January 31, 2008
Lee, Sang Kyoon
Internal Accounting Control Officer
Lee, Jong Hee
Chief Executive Officer or President
KOREAN AIR ANNUAL REPORT 2007
112 · 113
ORGANIZATION MAP
Chairman & CEO
President & COO
Customer Service
Passenger Business DIV.
Cargo Business DIV.
Flight Operations DIV.
Internal Auditing
Passenger Business Planning
& Administration
Cargo Business Planning &
Administration
Flight Operations Planning
Passenger Network &
Revenue Management
Cargo Network & Revenue
Management
Passenger Strategy &
Development
Cargo Strategy &
Development
Corporate Safety, Security &
Compliance
Airport Customer Service
Cargo Logistics & Service
Flight Operations Quality
Assurance
Purchasing
Domestic Revenue
Management & Planning
Aerospace Business DIV.
Flight Crew Training Center
Passenger Service Center
Marketing & Planning
International Affairs
Legal Affairs
Flight Operations Technical
Support
Line Operations
Facilities & Environment
Information Technology
Corporate Communications
Plant Operations
Flight Standards
Maintenance &
Engineering DIV.
Catering Business DIV.
Korea Institute of
Aerospace Technology
Corporate Strategy &
Planning DIV.
Hotel & In-Flight Sales
Business DIV.
Commercial Aerospace Plant
Employee Relations
Cabin Service DIV.
Human Resources
Development Center
Cabin Crew Operations
Planning
Human Resources
Cabin Crew Operations
Corporate Finance DIV.
Revenue Accounting
Finance
Accounting
Operations Control DIV.
Scheduling
Operations Control
Engineering
Military Aircraft Plant
Material Supply
Human Resources DIV.
General Affairs
Maintenance Planning
Maintenance Quality
Assurance
Gimhae Administration
Office
Regional H/Q
Incheon INT’L Airport
Maintenance Training
Center
Gimhae Maintenance Center
Line & Base Maintenance
Center
Powerplant Maintenance
Center
EXECUTIVE OFFICERS
Company Headquarters
Cho, Yang Ho
Lee, Jong Hee
Chairman & CEO
President & COO
Internal Auditing
Customer Service
Corporate Strategy & Planning Division
Passenger Business Division
Lee, Sung Bok
Koh, Byung Woo
Chang, Kyung Hwan
Kang, Dal Ho
Managing Vice President
Vice President
Executive Vice President
Senior Vice President
Legal Affairs
Hanjin Group Corporate Management
Kim, Se Tai
Won, Jong Seung
Managing Vice President
Senior Vice President
Corporate Safety, Security & Compliance
Shim, Jae Moon
Vice President
Managing Vice President
Kim, Jae Ho
Park, Hak Jin
Vice President
Managing Vice President
Kim, Jong Cheol
Song, Yong Hoon
Vice President
Managing Vice President
Oh, Kyu Chul
China Joint Venture Project
Huntzinger, David Lee
Choi, Moon Kyu
Managing Vice President
Managing Vice President
Han, Sang Gil
Vice President
Choung, Do Kun
Human Resources Division
Suh, Yong Won
Executive Vice President
LCC Establishment Project
Kim, Jong Nam
Managing Vice President
International Affairs
Jung, Yung Hak
Managing Vice President
Bang, Sun Oh
Vice President
Purchasing
Kim, Jae Kun
Managing Vice President
Lee, You Sung
Managing Vice President
Kim, Tai Won
Cho, Won Tae
Managing Vice President
Lee, Sang Man
Managing Vice President
Lee, Taek Yong
Vice President
Jung, Ji Young
Vice President
Lee, Myung Hye
Vice President
Cargo Business Division
Lee, Kwang Soo
Chi, Chang Hoon
Managing Vice President
Senior Vice President
Lee, Soon Young
Corporate Finance Division
Managing Vice President
Park, Woon Ho
Lee, Sang Kyoon
Senior Vice President
Vice President
Jang, Si Woo
Vice President
Managing Vice President
Kim, Hyun Seok
Vice President
Catering Business Division
Cho, Hyun Ah
Kim, Chul Woo
Managing Vice President
Lee, Jong Suk
Managing Vice President
Hur, Young Jin
Information Technology
Vice President
Managing Vice President
Lee, Soo Keun
Managing Vice President
Vice President
Shin, Hyun Oh
Operations Control Division
Managing Vice President
Cho, Byung Taek
Kim, Heung Sik
Corporate Communications
Park, Nam Il
Managing Vice President
Suh, Kang Yoon
Vice President
Lee, Hwa Suk
Vice President
Shin, Mu Chol
Vice President
Senior Vice President
Yoo, Yun Kil
Managing Vice President
Hwang, Soo Young
Vice President
Managing Vice President
Moon, Kap Suck
Managing Vice President
Hotel & In-flight Sales Business Division
Kim, Nam Sun
Managing Vice President
KOREAN AIR ANNUAL REPORT 2007
114 · 115
Regional Headquarters
Aerospace Business Division
Flight Operations Division
Korea
Americas
Cho, Hang Jin
Lee, Young Duck
Lee, Dae Yul
Lee, Jong Eun
Executive Vice President
Senior Vice President
Managing Vice President
Managing Vice President
Kim, Se Han
Kim, Kyu Whan
Hwang, Myung Sun
Kang, Chang Hoon
Managing Vice President
Vice President
Managing Vice President
Managing Vice President
Choi, June Chul
Seo, Hwa Sok
Han, Dae Hang
Kim, Yong Soon
Managing Vice President
Vice President
Managing Vice President
Managing Vice President
Kwon, Kyung Hwan
Ahn, Sang Hoon
Lee, Jin Kul
Woo, Ki Hong
Managing Vice President
Vice President
Managing Vice President
Managing Vice President
Yoon, Shin
Nam, Suk Woo
Lee, Seung Bum
Managing Vice President
Vice President
Managing Vice President
Lee, Chang Hyo
Lee, Sang Chul
Lee, Woo Pyung
Vice President
Vice President
Managing Vice President
Jang, Kwang Soo
Kim, Kie Sick
Kim, Young Wook
Vice President
Vice President
Vice President
Ham, Myung Rae
Vice President
Han, Ki Doo
Maintenance & Engineering Division
Do, Hyun Jun
Vice President
Executive Vice President
Kim, Maeng Gon
Cabin Service Division
Managing Vice President
Lee, Myung Ki
Jang, Wan Soo
Senior Vice President
Managing Vice President
Lee, Kang Hoon
Kim, Joon Suk
Managing Vice President
Managing Vice President
Chung, Jin Hong
Kwon, Young Hwan
Managing Vice President
Managing Vice President
Jung, Woo Jin
Cho, Kyoo Bin
Managing Vice President
Managing Vice President
Kwon, Hyuk Min
Managing Vice President
Yoo, Jong Seok
Vice President
Kim, Sung Gab
Vice President
Han, Sang Won
Vice President
Lee, Nae Kyu
Managing Vice President
China
Vice President
Lee, Hyung Ho
Kang, Young Sik
Japan
Vice President
Kang, Kyoo Won
Managing Vice President
Kim, Jong Dae
Vice President
South East Asia
Kim, Choong Nam
Managing Vice President
Europe & Middle East
Park, Yong Soon
Managing Vice President
CIS
Kim, Suk Hwan
Managing Vice President
OVERSEAS NETWORK
Passenger & Cargo
Passenger
Cargo
KOREAN AIR ANNUAL REPORT 2007
116 · 117
DOMESTIC / CHINA / JAPAN NETWORK
Passenger & Cargo
Passenger
Cargo
COMPANY INFORMATION
DIRECTORY OF REGIONAL /
DISTRICT OFFICES
Date of Establishment _
June 19, 1962 | Privatized on March 1, 1969
KOREA
Service Center
Seoul Cargo Sales
(02)
1588-2001
751-7213
JAPAN
Service Center
Tokyo Cargo Sales
(03)
0088-21-2001
5443-3372
SOUTHEAST ASIA
Singapore
Bangkok
Manila
(02)
(02)
6796-2001
132-0650
893-4909
OCEANIA
Sydney
Auckland
Guam
(02)
(09)
(671)
9262-6000
914-2000
642-3216
Head Office _
1370 Gonghang-dong, Gangseo-gu, Seoul, Korea
Tel: 82-2-2656-7114 | Reservation: 82-1588-2001
Website _ www.koreanair.com
Listing _ The stock was listed on Korean Stock Exchange in March 1966
Paid-in Capital _ KRW 367 billion
Common Stock _ 71,971,631 shares
General Shareholders’ Meeting _ March 21, 2008
Major Shareholders (As of Dec 31, 2007)
Name
Number of shares
Ownership(%)
Cho, Yang Ho & Family
Hanjin Co.
Inha University Foundation
Jungseok Foundation
Korea Research Foundation for 21C
Treasury Stock
Subtotal
8,168,832
7,127,096
1,953,157
1,409,485
237,552
4,437,327
23,333,449
11.35
9.90
2.71
1.96
0.33
6.17
32.42
National Pension Fund
Mirae Asset Investments
Samsung Investments
Others
Subtotal
Total
6,408,689
2,774,635
1,360,523
38,094,335
48,638,182
71,971,631
8.90
3.86
1.89
52.93
67.58
100.00
CHINA
Service Center
Hong Kong
40065-88888
2366-2001
AMERICA
Service Center
Los Angeles Cargo Sales
New York Cargo Cargo Sales
(800)
(310)
(718)
EUROPE
Service Center
Paris Cargo Sales
Frankfurt Cargo Sales
00800-0656-2001
(01)
4816-9945
(69)
695-0361
438-5000
417-5203
632-5550
Produced by Design easybox
For More Information _
Tel: 82-2-2656-7114
e-mail: leesj@koreanair.com jmpark@koreanair.com
hyunjinkang@koreanair.com
Korean Air has a goal of becoming a respected leader in the
global airline industry and we have made great strides
towards reaching that goal. By maintaining the most
stringent safety standards in the industry, offering our
customers exceptional products and restructuring our
corporation, we are affecting a corporate culture change
that is achieving profitability.
EXCELLENCE
IN FLIGHT
Operational Excellence
Service Excellence
Innovative Excellence
1370 Gonghang-dong, Gangseo-gu, Seoul, Korea
Tel : +82-2-2656-7114
www.koreanair.com