What Happened? T’way Air’s 80% Capital Reduction

T’way Air announced an 80% reduction of its common shares, totaling 272,167,825 shares, on August 7, 2025. The par value will decrease from 500 KRW to 100 KRW. The stated purpose of this reduction is to improve the company’s financial structure.

Why the Capital Reduction? Urgent Need for Financial Improvement

T’way Air is struggling with deteriorating profitability and a high debt-to-equity ratio (approximately 435%). Its operating profit turned negative in Q1 2025, and the company has a history of corporate rehabilitation filings and rights offerings. This capital reduction aims to lower the debt-to-equity ratio and improve the financial structure by reducing capital.

What’s Next? Balancing Hope and Concern

  • Potential Benefits: Improved debt-to-equity ratio, prevention of share dilution, potential boost to investor sentiment.
  • Potential Risks: Increased short-term stock price volatility, uncertainty regarding actual financial improvement, weakened ability to absorb external shocks due to reduced capital.

What Should Investors Do? A Cautious Approach is Necessary

Capital reduction is a double-edged sword. While it can improve the financial structure, its effectiveness is limited without actual improvements in profitability. Investors should carefully consider the following factors:

  • Avoid impulsive reactions to short-term volatility; observe and respond strategically.
  • Continuously monitor profitability improvements.
  • Verify changes in financial indicators after the capital reduction.
  • Consider macroeconomic and industry conditions.