excellence - korean air · pdf fileexcellence at work 14 2007 at a glance ... korean...
TRANSCRIPT
2 Profile
4 Financial Highlights
6 Message from the Chairman
10 Board of Directors
11 Corporate Governance
Excellence At Work14 2007 at a Glance
16 Business at a Glance
18 Passenger Business
22 Cargo Business
26 Aerospace Business
28 Catering Business
29 Hotel & In-Flight Sales Business
Excellence In Action32 Maintenance & Engineering
33 Safety
34 Fuel Management
35 SkyTeam Alliance
36 Social Contributions
40 Environmental Management
42 Human Resources
Financial Section46 Management’s Discussion &
Analysis
64 Financial Statements
113 Organization Map
114 Executive Officers
116 Overseas Network
118 Domestic / China / Japan Network
119 Corporate Information
CONTENTS
Korean Air’s New BoeingFreighter(B747-8)
2007 ANNUAL REPORT
Flying High in
Excellence
Established as the nation’s flagship carrier in 1969, Korean Air has continuously expanded its operationsand focused on customer satisfaction. Today, with a fleet of 126 planes including the world’s mostadvanced aircraft, Korean Air’s effective management systems and customer-oriented policies haveenabled the airline to achieve outstanding performances and meet the customers’ needs during the lastfour decades.
As a world’s leading carrier in terms of quality and quantity, Korean Air is now faced with higher expec-tations and more opportunities to move forward. In 2008, Korean Air will fly to 115 cities on the world’ssix continents, truly defining us as a leading global airline in service networks. With the ultimate goal ofbecoming a Respected Leader in the world airline industry, we have a clear mission of providing “Excel-lence in Flight,” a firm commitment to delivering value to our customers, shareholders and the commu-nities we serve. The passion for innovation and creativity will continue to be an underlying core compe-tency of Korean Air as its management and 17,000 dedicated employees strive to achieve Excellence inFlight.
A Passion for Excellence in Flight,Our Total Commitment to the Future
FINANCIAL HIGHLIGHTS
Operating Revenues (In billions of KRW) (In billions of KRW)
(In billions of KRW) (In billions of KRW)
Total Assets
Operating Income Net Income
004 · 005KOREAN AIR ANNUAL REPORT 2007
OPERATING RESULTS
Operating revenues 9,392.4 8,812.0 8,077.9 7,584.2 7210.9 6,177.2
Gross profit 2,155.9 2,022.7 1,773.4 1,692.3 1,668.9 1,413.5
Selling, general & administrative expenses 1,477.1 1,385.8 1,276.0 1,259.8 1,284.9 1,102.1
Operating income 678.8 636.8 497.4 432.5 384.0 311.4
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)
FINANCIAL CONDITION
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
Total shareholders’ equity 4,699.1 4,408.7 4,375.4 4,028.9 3,811.1 3,356.3
FINANCIAL RATIOS (%)
Return on average equity 0.2 9.1 5.1 5.8 Net loss
Return on average assets 0.1 2.8 1.5 3.7 Net loss
Debt-to-equity ratio 243.7 210.5 236.8 260.5 320.6
EBITDAR margin 19.4 19.3 19.3 20.5 22.7
Fixed charge coverage ratio (times) 2.2 2.0 2.0 1.9 1.7
PBR 117.5 54.8 52.9 33.1 36.8
PER SHARE DATA
Earnings Per Share(In USD, KRW) 0.2 148 5,725 2,989 7,765 (3,607)
(Years ended December 31)
In millions of USD* In billions of KRW*
Financial Highlights
2007 2007 2006 2005 2004 2003
2007 2006 2005 2004 2003 Change (%)
Revenue Passengers Carried 22,834,003 22,353,169 21,708,821 21,454,574 21,546,086 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 2,281,671 2,115,089 1,981,708 2,017,994 1,767,927 7.9%
Available Freight Ton-Kilometers ('000AFTK) 12,992,069 11,661,645 10,830,838 11,014,965 9,794,140 11.4%
Revenue Freight Ton-Kilometers ('000FTK) 9,677,679 8,857,155 8,139,959 8,345,244 7,061,863 9.3%
Operational Results
*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
006 · 007KOREAN 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 operatingincome of KRW 637 billion largely by strengthening our route networks in emerging markets such as Chinaand 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, andChiang Mai, while further solidifying and expanding our cargo network by adding Moscow, Munich, andHouston.
In addition, we created an affiliated budget carrier, Air Korea, to compete in the low cost airline market thatis blossoming throughout Asia. We launched operations for Grandstar, the cargo airline we jointly estab-lished with Sinotrans, China’s largest logistics company. This will allow us to tap into the energetic Chinesemarket and reinforce our international competitiveness.
We have invested significantly to deliver Excellence in Flight, and continue to pursue improvements that willadd to our shareholders’ and brand equity. We are concentrating on flying the most advanced and environ-mentally-sensitive fleet, providing a memorable and rewarding in-flight experience and having the ability totake anyone anywhere at any time. Internally, we are committed to our 10-10-10 strategy designed toincrease revenues, reduce costs without impacting quality, and improve productivity by 10 percent respec-tively.
All these efforts have helped make Korean Air the global leader it is today.
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 thirdconsecutive year. Business Traveler readers voted Korean Air as being the Best Airline in Asia and having theBest Transpacific Business Class service. For the third year in a row, Korean Air received the coveted MercuryAward by the International Travel Catering for exceptional inflight catering. Our catering services also werepraised by PAX International, an important trade magazine, that chose Korean Air as Airline of the Year inAsia.
And our SkyTeam Alliance, of which Korean Air is a founding member, was selected as the best airlinealliance by Business Traveler magazine’s readers, further reinforcing our position as a leading global airlinein 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 USsubprime mortgage crisis, and a general slowdown in major market economies. Domestically, we haveobstacles as well, including a strong Korean Won that is weakening our export competitiveness, and a realestate market mirroring those that are declining around the world. Despite these obstacles, we have plannedfor and expect robust growth in outbound travel due to the new administration’s policy of economicimprovements. We also are optimistic about the upcoming Beijing Olympics, the proposed visa exemptionaccord 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 bil-lion in operating income. This is tangible evidence of the company’s commitment to producing strong prof-its under tough conditions.
To maintain substantial growth and reinforce our competitive edge, we will continue to strengthen our focuson profitable routes and enterprises, products that customers demand and view as valuable, and a corporate
008 · 009KOREAN AIR ANNUAL REPORT 2007
culture that fosters innovation and foresight. In addition, we are investing our time and efforts to substan-tially promote and protect our environment and have been publishing an annual sustainability report thatcommunicates our efforts worldwide.
Our emphasis on IT has resulted in 100% domestic and about 90% worldwide e-ticketing, saving time andtrees over paper tickets. This coincides with IATA’s goal of 100% e-ticketing globally by year’s end, makingthe 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 andcomfort. In addition, we anticipate adding new routes to our global network, including Sao Paulo, Brazil. In2008, Korean Air will fly to at least 115 cities on at least five of the world’s six continents, truly defining us asa leading global airline.
Each of Korean Air’s 17,000 management and employees is dedicated to securing global leadership throughstronger competitiveness and substantial growth, and your continued encouragement and support is essen-tial to our success. We thank you for your past loyalties and look forward to your trust in the future.
Thank you.
Cho, Yang HoChairman & CEO
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 07
08 09 10
01. Cho, Yang HoChairman & CEO
02. Lee, Jong HeePresident & COO
03. Lee, Tae HeeGeneral CounselSenior PartnerLEE & KO
04. Kim, Seung-YuDirectorChairman & CEOHana Financial Group
05. Hong, Young ChulDirectorChairman & CEOKISWIRE
06. Park, Oh SooDirectorProfessorSeoul National University
07. Kim, Jae IlDirectorProfessor Seoul National University
08. Lee, Sog WooDirectorLaywer Doo-re Law Firm
09. Cho, Hang JinExecutive Vice PresidentKorean Air Aerospace Business Division
10. Suh, Yong WonExecutive Vice PresidentKorean Air Human Resources Development
010 · 011KOREAN AIR ANNUAL REPORT 2007
Korean Air is fully committed to shareholder value through ethical behavior and social responsibility. In an effort to effectivelydeliver corporate transparency, the Company continues to maintain regulatory systems and operational processes rangingfrom major decision-making to everyday activities.
The Board of Directors makes important decisions of the company and guarantees independence in its work. Korean Air’sexecutive team reports to the Board at meetings so that all decisions can be made based upon a clear understanding of the busi-ness 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, whilepreventing unfair trade practices. Korean Air also is strengthening training programs to promote ethical practices amongmanagement and employees.
The Company emphasizes corporate ethics in the activities of all of its employees and management. Korean Air introducedstandards for value judgment and behavior through its Corporate Code of Ethics and Practice Guidelines, and continues tomake 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 cor-porate ethics courses, and all new employees are required to submit a written corporate ethics pledge. In 2006, Korean Airstrengthened 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 theorganization, unfair or unethical conduct, and irregularities in transactions with outside parties. Any of the above activitiesthat 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 informationand strengthening accounting transparency through our Internal Accounting Control system. Through an advanced internalaccounting control system, we regularly monitor the efficiency of the internal accounting management and the operating sta-tus of internal controls.
Korean Air is fully aware that corporate openness will enhance our corporate image and strengthen our competitiveness. Wewill continue our efforts and practices to further achieve our goal of true corporate transparency.
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.
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 consec-
utively 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 plat-
forms for maximizing its potential for future growth.
EXCELLENCE AT WORK
2007 AT A GLANCE
EXCELLENCE AT WORK
Despite huge challenges in 2007,Korean Air countinued to expandwith operating revenue increased byan impressive margin. SkyTeamretained its worldwide leadershipwith the addtion of the new carriers tothe alliance. Korean Air also posi-tioned itself as the airline companythat contributes to cultural exchangesby partnering with Musée du Louvre.All these efforts were acknowledgedby the world’s prestigious awardsKorean Air won last year.
Korean Air to Establish NewLow Cost Carrier
In June 2007, Korean Air announcedthat it would launch a low cost carrier,provisionally named “Air Korea”, anddisclosed its details in November, say-ing that the carrier would begin oper-ation in 2008. Air Korea will useIncheon International Airport as itsbase airport, and after launchingdomestic routes, it plans to graduallywiden its network to short-or-mid-distance international destinations.
Korean Air: A LaunchCustomer for the B787Dreamliner
On July 8, 2007, Korean Air partic-ipated as a launch customer at the roll-out ceremony of the Boeing 787Dreamliner at the Boeing Everett facil-ity near Seattle. The rollout ceremonywas especially meaningful to KoreanAir because the airline is not only partof the launch customer team awaitingdelivery, but also one of the suppliersparticipating in the manufacturing ofthe state-of-the-art airplane. Deliverywill begin in 2009 and extend through2013.
Korean Air Welcomes ChinaSouthern to SkyTeam andThree Associate Airlines
In November 2007, Korean Air wel-comed SkyTeam’s eleventh full mem-ber - China Southern Airlines - to thealliance, of which the airline is afounding member. “We look forwardto fostering closer ties with our newChinese partner to expand our pres-ence in China,” said Mr. Yang ho Cho,
Chairman and CEO of Korean Air.Meanwhile, in September, SkyTeamadded Air Europa, Copa Airlines andKenya Airways as the first officialSkyTeam Associate Airlines to thealliance.
Korean Air Sponsors LouvreMuseum’s New MultimediaGuide
In February 2008, Korean Airannounced it was partnering withMusée du Louvre to enhance art andcultural understanding for people allover the world. As part of the agree-ment to co-sponsor the Louvre’sinnovative new multimedia guide,commentary is translated into sevenlanguages including English, Germanand Korean. Being the first of its kindbetween a global airline and interna-tional museum of this stature, it is alsothe first time any guide has been avail-able in their mother-tongue for thetens of thousands of Korean visitorswho visit Louvre.
Korean Air: A Year in Review
014 · 015KOREAN AIR ANNUAL REPORT 2007
One of the Best “Cellars in theSky”
In February 2007, Korean Air’s worldclass wine service has been recognizedby Business Traveller magazine (UK)as having one of the industry’s bestwine services. In its annual competi-tion to find the finest airline wines inFirst and Business class, BusinessTraveller honored Korean Air in sixcategories including best business classwhite wine. Korean Air offers winesfrom nine different countries to meetthe diverse tastes and preferences of itsinternational passengers.
Korean Air Wins 3rd MercuryAward for “A Letter FromFlying Mom”
On March 9, 2007, Korean Airreceived the prestigious ‘MercuryAward’ from the International TravelCatering Association (ITCA) for thedevelopment and service implementa-tion of “A Letter From Flying Mom”service for unaccompanied minorpassengers and their families. Started
in 2002, the service is designed to pro-vide closer personal service for unac-companied minor passengers and givereassurance to parents that their chil-dren are being well taken care of.
Best Economy Class in WorldAirline Awards
Korean Air was named the world’sBest Economy Class 2007 in theSkytrax 2006/7 World Airline Awardsin July 2007. The World AirlineAwards, regarded around the globe asthe leading independent monitor ofpassenger opinions, recognizedKorean Air’s “new level of achieve-ment,” which reflects “ a strong com-bination of both product and staff ser-vice quality.”
“Excellence in Entertainment”Recognized by WAEA
In September 2007, Korean Air wontop honors in the World AirlineEntertainment Association’s (WAEA)2007 Avion Awards, ranking amongthe top airlines for “Best Achievement
in In Flight Entertainment” and one ofthe top in “Best in Region - Asia &Australasia” category. Korean Air wasrecognized for its vast investment suchas AVOD in all cabins and creative ser-vice enhancements such as the launchof its new entertainment guide‘Beyond.’ Top rankings in the AvionAwards are confirmation that KoreanAir’s in-flight entertaiment is on theright track to realizing its mantra“Excellence in Entertainment,” stay-ing true to the airline’s mission,“Excellence in Flight.”
Korean Air’s Major Awards in 2007
BUSINESS AT A GLANCE
EXCELLENCE AT WORK
With continued efforts in fleet andnetwork expansion and the introduc-tion of new services, Korean Air pas-senger business grew 9.7% in operat-ing revenue in 2007, an impressivegrowth attained despite enormouschallenges and competitions it facedlast year.
For three consecutive years since 2004,Korean Air’s cargo business has beenranked the world’s number one inFTKs by IATA and it expects to retainthat top position again in 2007.Korean Air will continue to be suc-cessful and solidify its position as theleader of global air cargo industry.
Passenger Business Cargo Business
Passenger Business Cargo Business
Operating Revenues(in billions of KRW)
Business Profile
2,5335,217
016 · 017KOREAN AIR ANNUAL REPORT 2007
For the last three decades Korean Airhas been leading the nation’s aero-space industry and has become theAsia-Pacific hub for aircraft mainte-nance, delivering over 3,500 aircraft sofar. Now it produces commercial air-craft structure components includingthe B787s and expands to satellitedevelopment and other operations.
In 2007, Korean Air provided almost50,000 meals per day and recorded asignificant sales growth of 13.8% toKRW 58.4 billion. Korean Air offers awide range of dishes to cater to its pas-sengers’ tastes and is continuing itsefforts to develop traditional Koreaninflight meals as a way to promoteKorean culture.
Korean Air’s efforts to maximize cus-tomer satisfaction continued last year.Despite an overall revenue decrease by4.6% due to competition and largeinvestments, Hyatt Regency Incheongrew 14.5% in 2007. Two other busi-ness sectors, KAL Limousine Bus andIn-flight Sales, increased by 4.8% and20% respectively.
Aerospace Business Catering Business Hotel & In-Flight Sales Business
Aerospace Business Catering Business Hotel & In-Flight Sales Business
235 58 35* In-Flight Sales revenues are not included
Through a wide range of sales and profitenhancement activities, the Passenger Business Division strengthened its revenuemanagement and increased high-yield destinations to protect earnings and meetchanging demands. 22.8mil.
EXCELLENCE AT WORK
PASSENGER BUSINESS
Passenger Business Review 2007In 2007, Korean Air faced enormous challenges due to newlyestablished low-cost airlines, Korea’s economic recession,and a prolonged slump in exports. In addition, oil pricessoared to unprecedented levels, severely impacting the glob-al airline industry in general. Conversely, expectations wereand remain high because of a strengthened Korean Won, anincrease in outbound travel due to the five-day workweek,and openings of the Chinese, Japanese, and Southeast Asianmarkets.
The Passenger Business Division concentrated on a widerange of sales and profit enhancement activities includingidentifying new markets and demand, expanding our globalroute network, promoting our premium class seats,strengthening our revenue management and operatingflight schedules in a convenient as well as profitable manner.
We reduced under-performing routes and increased high-yield destinations to protect earnings by adjusting supply tomeet changing demands. At the same time, we spared no
Composition of Revenues by Route(%)
total passengers carried
018 · 019KOREAN AIR ANNUAL REPORT 2007
efforts on developing new markets by launching new regularpassenger flights to Cebu, Madrid, Zhengzhou, Melbourne,Chiang Mai, and between Busan and Manila.
To further enhance the Sky Team Alliance’s market leader-ship, China’s largest airline, China Southern Airlines, joinedour Alliance and started providing convenient flights tointernational passengers traveling between China and theAmericas, Europe, and Oceania. We also started codeshareservice with Hawaiian Airlines, followed by welcoming AirEuropa, Copa Airlines and Kenya Airways into SkyTeam asour first associate airlines, further expanding our networkcovering Europe, the Americas, and Africa.
Following the year 2006, Korean Air has been keeping onidentifying and creating a series of new programs to differ-entiate its service for premium passengers and VIP membersof our frequent flyer program, thereby offering more valuefor loyalty to the airline.
Our automatic e-ticketing service in domestic airports hasreached 100 percent and includes a system to collect excessbaggage charges. And in international airports, 99 percentof our passengers are using e-tickets, allowing travelers tocheck in for their international flights at self check-in kiosks.
Description 2007 2006 YoY (%)
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%
Passenger Business
2007 2006 2005 YoY (%)
11.3 10.5 9.9 7.6%
Fleet Utilization (Unit : Flight Hours/Day)
EXCELLENCE AT WORK
The new IT systems also provide improved baggage-taggingfor our priority passengers.
Last year, we accepted five new airplanes, and Korean Air’sengineering expertise was put into use upgrading 17 existingones since 2005. Customers are showing a very positiveresponse to our upgraded premium seats, an extensive andstate-of-the art inflight, on-demand entertainment systemand improved meals and food service.
Business Plan 2008The world’s economic landscape is expected to remainvolatile, and Korean Air is meeting these industry and globalchallenges head-on with a motto of “solidifying growth on afoundation of substance and efficiency”.
In order to strengthen substance and efficiency, we are usingflexible strategies to make sure our fleet and schedules areefficient and meeting demands in our core target markets.We’ll also employ flexible strategies to prepare for Korea’sairline deregulation and the challenge low cost carriers bring
International Passenger Market Share
(Korea In/Outbound, No. of Passengers)
Domestic Passenger Market Share
(No. of Passengers)
020 · 021KOREAN AIR ANNUAL REPORT 2007
to our market. One of our most visible tactics is to launch alow cost carrier of our own, Air Korea (provisional name), tomeet changing market demands.
To maintain a continued momentum for dynamic growth,we will launch passenger service to Sao Paulo to secure afoundation in South and Latin America. We are also estab-lishing a second hub in Germany by launching flights toMunich. And we always are poised to review emerging mar-kets to determine profitability and potential demand.
Meanwhile, in our quest for improving work process andefficiency, e-ticket database and the PAXIS will be broughtin, providing a passenger information processing systemthat uses global market information to support us in makinginformed decisions.
We are constantly striving to lead our industry with remark-able customer service by further strengthening our existingsystems and activities, as well as determining new servicesthat increase and enhance customer demand while provid-ing efficiencies and profitability.
Seat Class Composition by Revenue Terms
EXCELLENCE AT WORK
CARGO BUSINESS
Business Review in 2007With a steadfast revenue increase of 6.8% compared to 2006,Korean Air Cargo posted KRW 2.5 trillion in revenue for2007 despite a yield drop by 0.6% caused by an increasinglycompetitive market situation in Korea. On the freight capac-ity side, with a flexible schedule policy patterned by the actu-al market demand, Korean Air Cargo marked 9,678 millionton-kilometers - a 9.3% increase over the previous year.With such strong capacity, Korean Air Cargo recorded 2.3million tons of total freight and mail carried. This figure is a7.9% increase over 2006.
For three consecutive years since 2004, Korean Air’s Cargobusiness has been ranked the world’s number one in FTKsby the International Air Transportation Association (IATA)and Korean Air Cargo expects to retain that top positionagain in 2007. All of these achievements were made possibleby Korean Air’s strengthening of overseas sales capabilitiesand our continuing efforts to develop new markets.
Revenue Enhancing Activities Korean Air Cargo has been expanding its network continu-
ously since 2001, which is at the core of its cargo strategy, andagain extended its network to four new cities in 2007, includ-ing Moscow, Houston, Xiamen and Munich.
Korean Air Cargo has solidified its position in the China aircargo market through adding frequencies to our existingcargo power points such as Shanghai and Tianjin and newfreighter service to emerging cargo centers like Xiamen. Byforging this proactive market development, China hasbecome the 2nd largest market base of Korean Air Cargo,only after our Korean market.
Meanwhile, Korean Air Cargo has focused on developingnew products to offline destinations. ‘Latino Express’ is theeffective sales vehicle to highly profitable Latin Americandestinations. By providing the seamless connections andreal-time cargo status information, the ‘Latino Express’ hasproven itself as option that competes effectively with the on-line service of other airlines.
Cost Saving ActivitiesAs ever increasing fuel prices erode profitability in the air
Maintaining its strategy of expanding the service neworks, Korean Air Cargo continues to retain its leadership as the world’s numberone cargo carrier. mil.2.3
total tons of freight carried
022 · 023KOREAN AIR ANNUAL REPORT 2007
cargo industry, Korean Air Cargo is rearming its fleet withmore fuel efficient aircraft. By ordering five each new B747-8Fs and B777Fs, Korean Air Cargo has set its path of trans-forming 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, KoreanAir was able to reduce the cost of leased freighters by reduc-ing the less-than-expected load factor flights.
2008 Plans for the Cargo BusinessOn top of such remarkable achievements in 2007, KoreanAir is preparing for many new challenges in 2008.Continuously escalating fuel prices will have the greatestaffect on the profitability of Korean Air Cargo in this yearand in the foreseeable future. Therefore, Korean Air Cargo’soverall business plan is designed to minimize the negativeimpact of fuel cost pressure on the cargo business while pre-serving the vitality and potential for continuous, stronggrowth.
Korean Air Cargo will focus on maximizing the revenuepotential of capacity while adding the least number of newaircraft. In 2008, Korean Air Cargo takes delivery of only twoB747-400 freighters converted from passenger aircraft.
However, with three outgoing freighters (one B747F andtwo Airbus freighters) to Grand Star, Korean Air’s cargojoint venture in China, total capacity of freighters of KoreanAir Cargo will remain almost the same throughout 2008.Instead of adding new freighters to our fleet, Korean AirCargo will reorganize its network and revise its schedule toensure increased freighter operating hours and more intra-Asia frequencies from which Korean Air Cargo expectslower costs and high yields.
The total revenue target of Korean Air Cargo in 2008 is set asKRW 2,665 billion, an increase of 12% over 2007. To attainthis impressive target, Korean Air Cargo has formulated thestrategy matrix for 2008 as follows:
First, Quality as the momentum for the further growthAs the air cargo industry becomes saturated in most globalmarkets, quantity-oriented strategies will fail to securemomentum for further growth. Korean Air Cargo, by rein-forcing and improving its logistics value chain, will focus onthe more profitable quality-oriented market segments. Toachieve this strategic drive for quality, Korean Air Cargo isproactively redesigning its quality matrix on every criticallogistics path, with the goal to exceed all other air logisticsproviders in terms of quality.
EXCELLENCE AT WORK
Second, retaining Leadership the world air cargo industryKorean Air Cargo will continue to retain its position as theworld’s number one freight carrier, a position it has attainedin a mere 40 years. Retaining this position demands us tostrengthen our brand, increase our abilities and create avitality in the global air cargo business.
Third, Profitability through customer satisfactionKorean Air Cargo’s value to the worldwide logistics businessand to Korean Air’s shareholders can be achieved by attain-ing the above strategic goals. By tapping into every opportu-nity for quality markets and higher efficiency, Korean AirCargo will continue to be an impressive factor in the worldcargo business. Moreover, winning and keeping our cus-tomers’ loyalty is essential to maintaining our global leader-ship position in 2008 and beyond.
Outlook in 2008Korean Air Cargo is impacted by the issues facing the worldeconomy. Still, demands for high-priced consumer elec-tronics, which is the major commodity from Asian countriesto US and EU, should remain at the current demand level.The Korean export market in particular, which relies heavi-ly on sophisticated consumer and industrial electronics,should maintain the same demand level as 2007. Eastboundtraffic from China and Southeast Asia will remain strong asin 2007, but increased market competition and acceleratedpressure from fuel costs on the long hauls could erode a sig-nificant portion of profitability.
In the US, the weak dollar (against other major currencies,including Euro, Yen or the Korean Won), could show anoticeable increase in westbound demand. However,despite such a strong surge in demand, the weaker dollarmight offset the net contribution.
Description 2007 2006 YoY (%)
Capacity (‘000 AFTK) 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%
Cargo Business
2007 2006 2005 YoY (%)
14.2 15.0 15.0 -5.3
Fleet Utilization (Unit : Flight Hours/Day)
024 · 025KOREAN AIR ANNUAL REPORT 2007
The EU will remain strong in both export and import,regardless of its strong Euro. However, as global reposition-ing of Asian manufacturing companies becomes complete,there will be a need for reenergizing markets and placingincreased value in the brand.
Though there is cautious optimism in the market for 2008,Korean Air Cargo will continuously focus on profitabilitythrough optimizing its network and resources. In addition,by extending its long time tradition of winning the cus-tomers, Korean Air Cargo will continue to be successful andsolidify its position as the leader of global air cargo industry.
KE’s Share in Korean Market
EXCELLENCE AT WORK
AEROSPACE BUSINESS
Introduction Korea’s aerospace history began with the production of500MD helicopter by Korean Air in 1976. In a relativelyshort period, Korean Air has manufactured and deliveredthe F-5 ‘Jegongho’ fighter - representing a milestone inKorean aerospace industry. Also it has produced the UH-60‘Black Hawk’ helicopter featuring superior mobility and sus-tainability.
Korean Air Aerospace division has been expanding its capa-bilities to commercial aircraft structure manufacturing,satellite development and other business areas to optimizeits business structure. And it has been successfully managingall business sectors for more than 30 years.
Aerospace Division’s main plant, the Tech Center, is locatedin Busan on a 170-acre site with aircraft hangars, paintingand electronic components overhaul facilities, etc. KoreanAir also operates the ‘Korea Institute of AerospaceTechnology’ in Daeduck Science Town on a 40-acre site, topromote state-of-the-art technology in aerospace design anddevelopment.
Since 1978 Aerospace Division has become the Asia-Pacifichub for aircraft maintenance, delivering over 3,500 aircraftso far.
With its vast experience, it now provides logistic supports forF-4 fighter, P-3C anti-submarine patrol aircraft, 500MD,UH-60, CH-47, LYNX, ALT-III helicopters for Korean gov-ernment and A-10 Attacker, F-15 and F-16 fighters, and CH-53 helicopters for the US government.
Business Review in 2007Korean Air’s Aerospace Division has participated inKHP(Korea Helicopter Program) which has been develop-
ing the aft fuselage and tail rotor system. It also performedthe crash damage recovery program for C-130 Hercules. TheDivision recently commenced its B747 cargo conversionprogram and successfully delivered three aircraft by the endof 2007.
The Aerospace Division has been working with Boeing todevelop the next generation B787 Dreamliner aircraft foryears, and is playing a leading role in the joint developmentand manufacturing of the aircraft. Korean Air is one of seveninternational partners for the 787 development program.
The Aerospace Division has invested in equipment and facil-ities to manufacture the advanced composite product for theB787 and has developed new equipment for the advanceddesign and manufacturing techniques required for B787parts development. The participation in these programs,teamed up with major companies around the world, willdefinitely be a turning point to becoming a more technolo-gy-oriented company.
In 2007, the first articles such as raked wing tips, flap supportfairings and section 48 aft body for the B787, were deliveredto the customer. For excellent performance in quality andon-time delivery, Boeing selected Korean Air AerospaceDivision as “Supplier of the Year”. By winning this prize thesecond time since 2001, Korean Air Aerospace Division hasbeen recognized as one of Boeing’s best partners in the newaircraft development.
Korean Air Aerospace Division signed a contract withAirbus to supply Elevator Assemblies for its best-sellingA320 family and delivered the first Elevator in 2007. Basedon this seed program, the Aerospace Division is now in dis-cussions with Airbus to participate in the development of theA350 extra wide body.
Through teaming up with such world-leading aircraft manufacturers as Boeing andAirbus, Korean Air marks a turning point to becoming a more technology-oriented company. 20aircraft to be modified to
freighters by 2014
026 · 027KOREAN AIR ANNUAL REPORT 2007
The Aerospace Division has experienced continued growthin the space business. Major ongoing space projects includeKSLV-I (Korea Space Launch Vehicle) System integrationand ARIRANG 3/5 satellite Main Bus and Solar ArraySystem structure development. The COMSAT(Communic-ation, Ocean and Meteorological Satellite) antenna develop-ment project was also successfully completed and prelimi-nary research activities on Liquid Rocket Engine Systemintegration and test facilities were begun.
Close-range surveillance UAV(Unmanned Aerial Vehicle)and high-precision GPS navigation system developmentprojects were also successfully completed. The AerospaceDivision began efforts to develop next generationUAS(Unmanned Aerial System) as the next step towardbecoming Korea’s UAV market leader.
Going ForwardBased on the remarkable and successful results of 787 devel-opment and manufacturing through on-time, high qualitydelivery, Korean Air Aerospace Division has started thedevelopment of 787 derivatives. In 2008, the AerospaceDivision will continue to expand its active participation inthe development of new aircraft such as B787-9, B747-8 andA350 XWB. And it will align available resources and capaci-ty to ramp up the production line for sharply increased rateof the 787 programs.
Korean Air Aerospace Division will expand its business areato commercial aircraft heavy maintenance and componentoverhaul of various kinds of military aircraft.
The Aerospace Division will continue its research efforts onLiquid Rocket Engine system integration and test facilitiesdevelopment in an effort to expand its space business andfocus on the UAS(Unmanned Aerial System) for defense
and civilian.
Korean Air Aerospace Division has plans to increase synergyand efficiency, and will reform its military business struc-tures according to the government’s regulation relief. Wealso are targeting a revenue of $300 million in 2008.
Revenue
Commercial (In billions of KRW)
(In billions of KRW) Military
EXCELLENCE AT WORK
CATERING BUSINESS
Business Review in 2007With more than 30 years of experience, Korean Air Catering(KAC) supplies in-flight catering services not only to KoreanAir, but also to 33 foreign carriers such as Singapore, UnitedAirlines, Air France, JAL, China Southern and others. In2007, KAC provided almost 50,000 meals per day andrecorded a significant sales growth of 13.8% to KRW 58.4billion, up from KRW 51.3 billion in 2006. This is mainlyattributed to the increase in demand from domestic andinternational airlines with increase in international passen-ger flights. KAC is the first airline catering organization inKorea to be certified by the government authority assuring acommitment to HACCP professional standards. Suchrecognition demonstrates KAC’s competitiveness as a lead-ing inflight caterer and affirms Korean Air’s superior qualityin the airline catering business.
Automated FacilitiesKorean Air’s Catering Center at Incheon was custom-designed by a consulting company specializing in the con-struction of such automated facilities. In line with similarfacilities worldwide, the plant utilizes the latest energy-sav-ing systems and equipment. The facilities make use of hi-tech equipment and systems such as electric monorail carttransportation and storage systems. Additionally, a GantryCrane Robot System, designed to move and store cleanedtransit carts, was introduced for the first time in the airlinecatering industry. With these automated systems, KAC canoffer competitive prices while maintaining superior quality.
Food Quality AssuranceIn-flight cuisine plays a vital role in assuring satisfaction tothe air traveler who is always looking for the best in service.The research and development team at KAC works continu-ously to develop meals and menus that render a moredelightful culinary experience during flight. Currently, KAC
offers a wide range of Western, Korean, Chinese, andJapanese dishes as well as children’s meals, and provides spe-cially-prepared meals in response to personal, religious ormedical requests. KAC is continuing its efforts to developtraditional Korean inflight meals as a way to promoteKorean culture to world travelers. Currently, almost 30 tra-ditional meals, such as Bibimbab, Bibimguksoo, Bulgogi andGalbi are served on Korean Air flights.
Flight Kitchen in BusanKorean Air’s Flight Kitchen in Busan, which opened in 1987,provides high quality meals to international flights departingfrom Busan. In 2007, Korean Air’s Flight Kitchen in Busanoffered almost 4,000 meals a day to 17 international carriers.
Going ForwardKorean Air will continue to maintain the world’s best in-flight meals as we strive to meet the diversified needs of ourpassengers. As Incheon Airport positions itself as a hub ofNortheast Asia, Korean Air’s catering business expects toattract a host of new clients with the increasing number ofpassengers enjoying the delights of Korean Air Catering.
To satisfy different tastes and culturalbackgrounds of passengers, Korean Air offers a wide range of international cuisines and provides specially-prepared meals.
028 · 029KOREAN AIR ANNUAL REPORT 2006
Business Review in 2007
Korean Air HotelsKorean Air operates three hotels in Korea[Jeju KAL Hotel,Seogwipo KAL Hotel and Hyatt Regency Incheon] and onein the United States[Wilshire Grand Hotel & Center].Through the hotel business, Korean Air not only maximizescustomer satisfaction by providing high quality service, butalso creates synergy between hotels and its core air trans-portation.
Combining its contemporary design and state-of-the-arttechnology with classic standards of service excellence, HyattRegency Incheon offers high quality service with world-classcomfort and luxury.
While KAL hotels recorded decreases in revenues by 4.6%due to the fierce competition in leisure market of Jeju, HyattRegency Incheon achieved a strong performance, posting14.5% revenue increase from a year earlier.
Meanwhile, with the completion of ballroom renovation in2007, Wilshire Grand Hotel has been in the middle of largelong-term investments for the main facilities including guestrooms and restaurants. These investments will make it moreprofitable and provide customers with upgraded hospitality.
KAL Limousine BusKAL Limousine Bus Service provides customers with themost convenient transportation by connecting domestic andinternational airports with major areas in Seoul. Revenuefrom KAL limousine bus service increased by 4.8% over2006 to KRW 17.4 billion.
KAL Limousine Bus Service is striving to ensure safe andspeedy operations as well as to improve its service qualitiesby offering better schedules and routes.
In-Flight SalesKorean Air’s in-flight sales recorded revenues of $209 mil-lion in 2007.
Passenger sales increased 9.1% in 2007 whereas in-flightsales jumped over 20% during the same period. This out-standing in-flight sales record was due to the cabin crews’endeavors as well as the continuous support from the man-agement.
In 2008, Korean Air expects revenues to increase again. Oneof the main reasons for this sales record was based on theKorean Air’s “pre-order system”, which allows customers toview and pre-order items prior to flights online. Because ofvarious marketing strategies and promotions, these onlinepassenger orders have constantly increased.
This past year, Korean Air introduced 43 new items and 77upgraded items in order to adapt the passengers’ rapidlychanging demands.
In 2008, Korean Air aims to further improve the in-flightsales to passengers through continuous cabin crew training,introduction of specialty and upgraded items, and anenhanced pre-order service.
HOTEL & IN-FLIGHT SALES BUSINESS
While passenger sales increased 9.1% in 2007,in-flight sales jumped over 20% during thesame period. Korean Air also provides qualitylodging, and creates synergies between hotelsand its core air transportation business.
Korean Air continues to live up to its ‘Operational Excellence’ vision.
As one of the world’s most punctual airlines, Korean Air’s operational reliabil-
ity supports the airline’s mission of quality maintenance and excellence in safe-
ty. As a proud architect and founding member of SkyTeam, Korean Air is grad-
ually 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.
EXCELLENCE IN ACTION
With a global reputation for high standards and technical excellence, Korean Air enjoysone of the world’s best dispatch reliability records, and is providing comprehensivemaintenance support and service for aircraft, engines and components to more than 30customer airlines operating in Korea.
EXCELLENCE IN ACTION
MAINTENANCE & ENGINEERING
Overview of Maintenance & EngineeringKorean Air has one of the world’s best dispatch reliabilityrecords and has provided comprehensive maintenance sup-port and service for aircraft, engines and components since1969. About 3,600 highly skilled and motivated personnelare working in the four major maintenance bases located inGimpo, Incheon, Bucheon, and Gimhae. With a full capabil-ity of airframe heavy maintenance, Korean Air performsmajor repair and modification on its own fleet and offersoverall maintenance support for more than 650 internation-al flights in a week. Korean Air also has an overhaul capabil-ity on PW4000 series and JT9D engines and an internation-ally acclaimed reputation for engine MRO (Maintenance,Repair, and Overhaul).
Korean Air’s maintenance operation continues to live up toits ‘Operational Excellence’ vision. In April 2007, Airbus andBoeing announced Korean Air as the best on-time operatorin the world. In December 2007, China’s World Travelermagazine and the US’s Forbes economic magazine acknowl-edged Korean Air as one of the world’s most punctual air-lines. Korean Air’s operational reliability supports the air-line’s mission of quality maintenance and excellence insafety.
Our highly reliable maintenance capability and technicalexcellence has led Korean Air to contract with a variety ofglobal customers. For example, United Airlines selectedKorean Air as a partner to perform cabin upgrades becauseof its excellent heavy maintenance experience with KoreanAir. Worldwide aviation authorities such as FAA(FederalAviation Administration), EASA(European Aviation SafetyAgency), and CAAC(Civil Aviation Administration ofChina) have all lauded Korean Air’s expertise, and we willcontinue to invest in better service of our customers .
Korean Air has been achieving the highest quality in allaspects of its operation and as a major partner in theSkyTeam alliance, we are gradually increasing strategicmaintenance alliances with other airlines. Korean Air’s ERPproject will replace current Maintenance & EngineeringSystems with state-of-the-art information and technologysystems. The airline will spare no expense in order to be acompetitive leader in Maintenance & Engineering with areputation of global top reliability and quality.
032 · 033KOREAN AIR ANNUAL REPORT 2007
Operational Safety for Accident PreventionKorean Air has maintained the management policy ofOperational Excellence, and completed its eighth consecu-tive year of accident-free operations. We are now looking tobe known and acknowledged as one of the world’s safest air-lines.
In support of this core value, we nourish our accident pre-vention system by identifying, analyzing and correcting anysafety hazard before it becomes an issue. Any unsafe elementdetected during operation leads to a comprehensive investi-gation to find the cause and prevent the recurrence of a sim-ilar irregularity. All information gathered from this proce-dure is thoroughly recorded into a database system that willbe reinforced by the Safety Management System (SMS),scheduled to operate this year. SMS will be the internationalstandard by ICAO beginning 2009. Last July, we launchedthe corporate SMS task force to establish the SMS that will bethe foundation for a superb safety reputation.
In addition, Korean Air has focused on safety activities dur-ing aircraft ground handling at both home base (ICN &GMP) and the other domestic and overseas stations. Theefforts resulted in an outstandingly low ground damage rate.It was reduced to 0.06 case per 10,000 flights; a rate of 1/3 ofthe 2007 goal of 0.18. We will keep supporting ground safetyby analyzing job hazards and activating a thorough safetytraining program.
Korean Air’s management policy of 2008 is to continue sub-stantial 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 programwill be up-graded and FOQA irregularities intensively con-
trolled. Last but not least, our safety culture will be increasedthrough safety policy revisions, activation of safety report-ing, and the encouragement of employees’ participation insafety education activities.
SAFETY
Korean Air’s management policy is to continue substantial growth and increase its globalcompetitiveness, based on an absolutely safe operational system. With the spirit ofoperational excellence, Korean Air is now looking to be known and acknowledged as oneof the world’s safest airlines.
EXCELLENCE IN ACTION
FUEL MANAGEMENT
Oil prices began escalating starting in 2003 and have contin-ued to rise in 2007. Korean Air’s efforts to achieve fuel costsavings and environmental responsibility have continued toincrease as well.
Korean Air founded a fuel management team in 2004 andthis group has been hard at work ever since, including theformation of a fuel management database since 2005 andinclusion of representation of all divisions into this group.
In 2007 we achieved a fuel cost savings of 46.1 billion wonthat can be directly attributed to the 22 initiatives we havebeen performing since 2006 and 18 newly incorporated ini-tiatives. Additionally, various fuel efficiency indexes, such asfuel consumption per ATK, block time and flying time areshowing a 2.0%~2.5% improvement in fuel efficienciescompared to those of year 2006.
In June 2007, we were evaluated for the implementation ofour advanced fuel managing process by an IATA Fuel Go-Team (which is a fuel management expert group) and we areranked as top global carrier in fuel management.
From 2008, we will continue to maintain our initiatives toachieve the level of global best practice in fuel management.We are reinforcing our performance monitoring and con-tinuing our focus on our outcomes in order to become theworld’s leading carrier in fuel management, all in the effortto achieve profitability and sustainability.
Last year, Korean Air achieved a fuel cost savings of 46.1 billion won directly attributableto our concerted initiative efforts. We are reinforcing our performance monitoring andcontinuing our focus on our outcomes in order to become the world’s leading carrier infuel management.
034 · 035KOREAN AIR ANNUAL REPORT 2007
Recently, the number of partner airlines increased to 11 withthe addition of China Southern Airlines.
Korean Air founded SkyTeam, the first customer-focusedglobal airline alliance, with Delta Airlines, Air France andAero Mexico in June 2000. Since its launch, SkyTeam hasgrown into a leading global airline alliance with 11 memberairlines. CSA Czech Airlines and Alitalia joined SkyTeam in2001 and Continental Airlines, KLM Royal Dutch Airlines,Northwest Airlines became members of SkyTeam in 2004.Aeroflot became a member in 2006 and the number ofmember airlines increased to 11 with the addition of ChinaSouthern Airlines in November 2007. China Southern is thefirst Chinese air carrier to join any global alliance. Recently,SkyTeam recruited three associate airlines: Air Europa, CopaAirlines and Kenya Airways.
Today, SkyTeam is the world’s second largest airline alliancegroup serving 841 destinations in more than 162 countries,with 16,409 daily flights available on an extensive global net-work of hubs and destinations. SkyTeam Cargo is the largestcargo alliance, serving more than 728 unduplicated destina-tions in more than 149 countries.
For the last seven years, SkyTeam has accomplished remark-able development. Its market share was only 11% at the timeof foundation, but increased to 25% in 2007. The number ofFFP members increased from 40 million to 110 millionmembers, and destinations increased from 451 cities to 841cities.
Through SkyTeam’s extended network, passengers enjoymore benefits while traveling on any SkyTeam carrier, withmore choices of flights and departure times, plus frequentflyer program benefits and seamless service. SkyTeam offerscustomers worldwide access to lounges, improved choiceand convenience, consistent service and the ability to be rec-ognized and rewarded for their loyalty.
As expressed in its slogan, “Caring more about you”,SkyTeam will continue to develop new benefits, services, andproducts that will improve the customers’ experience.
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 passengersthrough a worldwide system of over 16,400 daily flights covering 841 destinations in 162countries.
EXCELLENCE IN ACTION
SOCIAL CONTRIBUTIONS
Korean Air’s “Sharing” Management Under the slogan, ‘Wings of Love, Wings of Hope’, KoreanAir has been concentrating its efforts on “sharing” manage-ment through a number of social contributions. As socialresponsibilities of companies become increasingly impor-tant, Korean Air is extending its contributions to the world’ssocieties.
It has been five years since staff and management first start-ed the “Kkut Jun Fund Raising Movement”, which was thestarting point of Korean Air’s social contribution activity.The accumulated fund is used to support voluntary serviceorganizations inside and outside the company.
Korean Air supports the needy, volunteerism, worldwidesocial contributions and disaster relief activities in the coun-tries we serve. These activities constitute not only social wel-fare but scholarships, support of the environment, medicalservice and natural disaster relief.
Currently there are 20 social service groups under KoreanAir’s Social Service Organization. Each group provides vol-untary services such as scholarships for the under-aged in
charge of households, bathing service for the physically chal-lenged/elderly living alone and participating in social welfareorganizations. We use the benefits of an airline company byoffering round-trip tickets from/to Jeju Island to the under-aged in charge of households, the physically challenged, chil-dren with leukemia and the elderly living alone.
We also donate daily necessities to villagers and deliverdonations from social welfare organizations. For example,some voluntary social service groups under Korean Air’sSocial Service Organization continuously visit underdevel-oped regions in Southeast Asia. For the past three years,Korean Air has been aiding the Ministry of Health andWelfare-sponsored “Disabled Youth Dream Team, Face theWorld” program with round-trip tickets, volunteer transla-tors 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 voluntarysocial services we are providing each year.
Korean Air supports the needy and offers worldwide social contributions and disasterrelief activities in the countries we serve. These activities constitute not only social wel-fare but scholarships, support of the environment, medical service and natural disasterrelief.
036 · 037KOREAN AIR ANNUAL REPORT 2007
On a larger front, Korean Air has been providing medicalservice for residents of its sister village in Gangwon Provinceand 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. Wefunded aid and necessities during the year-end Jeju snowstorm disaster and delivered oil absorption materials fromoverseas to support cleaning up of the worst-ever crude oilspill on the West Coast, driven by the Ministry of MaritimeAffairs and Fisheries. Furthermore, all of Korean Air’s staffand management worked long hours to help mitigate theeffects of an oil slick Taean, joining in nationwide efforts toprotect the environment.
Based on the honorable efforts and dynamic culture ofKorean Air, we will not only provide creative and reliableservice focused on customer satisfaction, but also endeavorto make greater contributions to the society in which weoperate. Korean Air will continue to make its stand in its“sharing” management by giving back time and attention tosociety through substantial and continuous support.
EXCELLENCE IN ACTION
ENVIRONMENTAL MANAGEMENT
Environmental VisionKorean Air seeks to fulfill its corporate responsibility of pre-serving the environment by reducing the environmentalfootprint of its operations. We have established a vision:“Improving the Value of Life through the Harmonization ofAviation and the Environment” and are actively involved inworldwide efforts to make our airline operations environ-mentally friendly by adopting environmental managementpractices and setting mid-to-long-term environmentalgoals. Korean Air is dedicated to taking a proactive approachto environmentally and economically sustainable growth.
Environmental Impact of FlyingAll operations of an airline including flights, cabin service,aircraft maintenance and ground maintenance and supportactivities, have an impact on our environment. The most sig-nificant impact is flight itself because aircraft consume fossilfuels and emit carbon dioxide. In addition, noise fromdepartures and landings may significantly affect neighbor-hoods adjacent to the airport.
Airlines have continued to make efforts to decrease theimpact of their operations on the global environment and, in
recent times, such efforts have begun to show results. Forexample, many airlines, including Korean Air, have investedin efficient new airplanes and improved operational proce-dures, resulting in reductions in oil consumption, fuel emis-sions and noise. Korean Air also looks to invest further inenvironmentally-friendly technologies with an eye towards ahealthy future for our next generation.
Environment Management SystemKorean Air has received the ISO14001 certification, theinternational standard for environment management sys-tems, and has introduced a corporate-wide environmentmanagement system comprised of five sectors; theHeadquarters & General, the Aerospace Business Division,the Maintenance & Engineering Division, the CateringCenter, and the Jeju & Seogwipo KAL Hotel.
We also aim to prevent potential damage to the environmentthrough environmentally friendly processes and procedureswhich ensure the use of green resources, recycled wastes, andadherence to relevant environmental laws and regulations.
Over the mid-to-long term, Korean Air seeks to fully
To satisfy our customers’ demand for services while minimizing environmental impact,Korean Air has been continuously modernizing its fleet and raising efficiencies intransport operations. Despite increasing demand for air travel, Korean Air has been successfully reducing pollutants by improving fuel-efficiency.
038 · 039KOREAN AIR ANNUAL REPORT 2007
embrace green management practices across the Company.In line with our effort, we will adopt environmental policiesand procedures in areas such as cabin service and groundsupport activities.
Sustainability Activities in 2007
● Overseas Forestation ActivitiesThe “Korean Air Forest” is spread across more than 13 acresoutside the town of Baganuur, 80 miles east of theMongolian capital Ulaanbaatar. This is a living testament tothe airline’s commitment to its social responsibilities. Overthe past four years, more than 15,000 trees have been plant-ed at Baganuur to help stem the “desertification” of the areathat is afflicted by seasonal “yellow sand” storms.
On October 31, 2007, Korean Air launched a five-year large-scale reforestation program in the Kubuchi Desert of InnerMongolia, China, as well as in Mongolia itself.
Around 70 Korean Air staff members including Mr. YangHo Cho, Chairman and CEO of the Company, participatedin the October tree-planting event to signify the beginning of
the ‘Korean Air Ecological Park’ in China’s Kubuchi Desert.Through 2011, Korean Air will be helping grow 1.8 milliontrees at this park.
● UN Global CompactKorean Air announced in July 2007 that it joined the UNGlobal Compact which is designed to promote corporateresponsibility and pursue ethical management in companiesaround the world. The UN Global Compact is an interna-tional treaty launched in 2000 declaring 10 principles cover-ing human rights, labor standards, environment and anti-corruption. We expressed our decision to enter the treatysaying that Korean Air’s ethical management guidelines arein line with the ten principles of the UN Global Compact.We expect this decision will boost employee and customerloyalty through greater corporate transparency and socialresponsibility.
EXCELLENCE IN ACTION
Climate ChangeUnlike the problem of aircraft noise, which remains a con-cern for communities in close proximity to airports, green-house gas from fuel emissions is perceived as a worldwideissue, captivating the attention of stakeholders throughoutthe world.
Though air passenger travel and cargo transportation havedramatically increased, recent scientific research on aviationand climate change has shown that CO2 emissions from air-craft accounts for a mere 2% of the total amount of man-made CO2 emissions. Although aviation’ s overall contribu-tion to carbon dioxide emissions remains a small percentagerelative to the rapid growth of air transport, the airlineindustry worldwide takes climate change seriously and iscommitted to finding effective measures in limiting avia-tion's impact.
To satisfy our customers’ demand for services while mini-mizing the impact on the environment, Korean Air is mod-ernizing its fleet and raising efficiencies in transport opera-tions as a matter of policy. Our efforts to reduceconsumption of fossil fuels and curtail emissions are part ofour overall effort to promote the sustainable development of
The amount of CO2 emissions by Korean Air’s domestic operationsamounts to 0.2% of Korea’s total CO2 emissions and 1% of the total inthe transportation sector. If we include emissions by Korean Air’sinternational operations, which are currently excluded from the KyotoProtocol, the Company emits around 2% of Korea’s total CO2 emissions.
※Data Reference: 2004 Greenhouse Gas Inventory Policy Report/ Korea Energy EconomicsInstitute
Source : IPCC(Intergovernmental Panel on Climate Change, UN)
Share of Air Transport in Global man-made CO2
emissions
040 · 041KOREAN AIR ANNUAL REPORT 2007
the Company while reducing its impact on the environment.
Korean Air has long sought to decrease fuel use by modern-izing our fleet, expanding transportation networks, raisingload factors, improving maintenance and flight proceduresand reducing the weight of loads.
● Reduction of Aircraft CO2 Emissions Ratio Despite increasing demand for air travel, Korean Air hasbeen successfully reducing pollutants by improving fuel-effi-ciency. Indeed, much data shows that environmental pollu-tion does not grow in direct proportion to the increase intransport volume. For example, while ATK has increased9.6% since 2005, Korean Air’s CO2 emissions increased only8.3% over the same period. This signifies that a 1.3% growthwas achieved without environmental impact.
● EU to Include Aviation in Emissions Trading SchemeIn December 2006, the European Commission published aproposal to include air transport in its existing EmissionsTrading Scheme (ETS). This would include flights within theEU from 2011 and all flights to and from the EU starting in2012.
It is important to note that a greenhouse gas policy should bebased on a broader international agreement. Single-handedenforcement of a regional policy, without the support ofinternational stakeholders, will only distort competition anddiscourage airlines in their efforts to expand their invest-ment in the environment.
The Kyoto Protocol urges states to address emissions frominternational aviation through ICAO. Both the Protocol andICAO endorse emissions trading as a mechanism to achievethis. Given the global nature of aviation and climate change,it is essential that emissions trading initiatives respect theglobal policies and guidance developed by ICAO.
CO2 and ATK(Available Ton Kilometer)
■ 2007 CO2 Emisson=12,084,850 ton
(Calculation on formula : IPCC 2006 Guideline, Tier 1)
EXCELLENCE IN ACTION
HUMAN RESOURCES
Outline of the HR Policy The “Company is the People” is a philosophy that has guid-ed Korean Air’s human resources (HR) strategies and man-agement philosophies. The philosophy is based on the lateChairman and founder Joong Hoon Cho’s corporate princi-ple that “People create the company and the companyevolves upon the people’s endeavors”. Since its founding,Korean Air has placed a significant focus on creating effec-tive human resources policies and strategies. Although manycompanies highlight human resources, Korean Air has con-sistently been at the forefront in effectively practicing humanresource 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 ofemployee that Korean Air wants and needs to hire and retainto succeed.
Korean Air respects and supports those who have a veryproactive mindset, possess a high sense of the global natureof our business, are highly service-oriented, and have gooddiscipline. This KALMANSHIP is based on the HR philoso-phy, “Company is the People” and is reflected in the HRpolicies.
a) Proactive Mindset - Always think innovatively- Future-oriented mindset breaking the stereotypesAn active and creative mindset is a significant factor and cri-teria in recruiting new employees to Korean Air. Korean Airoffers a number of educational programs to enhance aproactive mindset of our employees. Korean Air also evalu-ates 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 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.
042 · 043KOREAN AIR ANNUAL REPORT 2007
Korean Air implements various policies and guidelines toenhance a global sense with all employees.
Korean Air instills an obligation of cosmopolitan citizenshipto our new employees by holding mandatory internationalvolunteer service every year.
Korean Air dispatches assistant manager level employees toforeign stations for one year term, thus providing opportu-nities to acquire foreign cultures and lifestyles. Also severalemployees are sent each year to one of the world’s mostrenowned MBA schools to acquire advanced academicknowledge.
c) Service-minded and Politeness- Neat appearance, warm-hearted, good manners- Professionalism and polite actions in all situations involv-ing customers
During the recruitment process, Korean Air carefully moni-tors the service-mindedness of the candidates to fit the com-pany standard. Service-mindedness is one of the key factorsof evaluation for all Korean Air employees. Korean Air’sService Institute trains and educates service mindedness inall of our employees.
d) Good discipline - Be fully responsible for the job assigned - Maintain good interpersonal relationships with other
employees in the organization
Service and safety are the core and crucial factors of an air-line’s business, and Korean Air places high value on employ-ees’ integrity and teamwork proficiency. Such values arestrongly reflected in the employment, education, appoint-ment and evaluation of all our personnel.
As of December 31, 2007
* Management and regional staffs are not included.
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
Others 348 19 367
Total 10,306 4,584 14,890
Personnel Breakdown
Personnel Breakdown
Category Male Female Total
Captain 762 762
Co-pilot 992 5 997
Apprentice 142 142
Total 1,896 5 1,901
Breakdown of Cockpit Crew
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.
FINANCIALSECTION
MANAGEMENT’S DISCUSSION & ANALYSIS
FINANCIAL SECTION
Selected Financial Data
In millions of USD In billions of KRW
(Years ended December 31) 2007 2007 2006 2005 2004 2003
OPERATING RESULTS
Operating Revenues 9,392.5 8,812.0 8,077.9 7,584.2 7,210.9 6,177.2
Domestic Passenger 624.1 585.5 612.2 618.5 634.2 704.6
International Passenger 4,936.7 4,631.6 4,144.8 3,732.5 3,372.7 2,765.5
Cargo 2,699.9 2,533.0 2,370.9 2,321.7 2,327.4 1,924.1
Others 1,131.8 1,061.9 950.0 911.5 876.6 783.0
Operating Expenses 7,236.5 6,789.3 6,304.5 5,892.0 5,541.9 4,763.7
Gross Profit 2,155.9 2,022.7 1,773.4 1,692.3 1,668.9 1,413.5
Selling, General &
Administrative Expenses 1,477.1 1.385.8 1,276.0 1,259.8 1,284.9 1,102.1
Operating Income 678.7 636.8 497.4 432.5 384.0 311.4
Non-operating Income 360.3 338.0 676.9 431.7 1,145.7 239.0
Non-operating Expenses 940.6 882.5 686.4 611.2 806.8 749.3
Income Before Tax 98.4 92.3 487.9 253.0 723.0 (198.9)
Income Tax Expense 86.9 81.5 104.9 54.3 203.5 45.2
Net Income 11.4 10.7 383.0 200.4 519.5 (241.1)
Current Assets 2,112.6 1,982.0 1,474.1 1,673.3 1,757.4 1,988.8
Cash & Cash Equivalents 733.9 688.5 453.7 577.4 703.1 875.2
Trade Receivables 740.4 694.6 602.6 585.6 584.3 565.0
Inventories 297.6 279.2 220.8 196.2 226.3 355.7
Others 340.8 319.7 197.0 314.1 243.7 192.9
Non-Current Asset 14,038.1 13,170.5 12,110.6 11,895.4 11,981.6 12,126.4
Investment Assets 1,774.2 1,664.6 705.4 659.5 532.3 515.7
Property, Aircraft and
Equipment, net 11,585.7 10,869.7 10,749.8 10,522.7 10,619.4 10,470.2
Intangible Assets, net 247.4 232.1 196.8 193.7 198.9 210.1
Others 430.7 404.1 458.7 519.5 631.0 930.4
Total Assets 16,150.5 15,152.4 13,584.7 13,568.6 13,739.0 14,115.2
Current Liabilities 3,888.0 3,647.7 2,994.9 2,849.4 3,079.0 2,923.6
Trade Payables 208.6 195.7 229.0 207.1 133.4 124.9
Short-term Borrowings 564.8 529.9 369.5 295.1 218.4 294.0
Accrued Expenses 505.1 473.9 462.4 435.4 472.3 402.3
Advance Receipts 517.4 485.4 375.7 329.7 303.3 336.8
Current Maturities of
Long-term Liabilities 1,458.6 1,368.5 1,031.4 1,021.3 1,468.1 1,213.3
Others 633.4 594.3 526.9 560.8 483.5 552.3
(Continued)
046 · 047KOREAN AIR ANNUAL REPORT 2007
In millions of USD In billions of KRW
(Years ended December 31) 2007 2007 2006 2005 2004 2003
Non-current Liabilities 7,563.3 7,095.9 6,214.3 6,690.4 6,848.9 7,835.3
Bonds, net 1,982.6 1,860.1 1,470.6 1,477.2 1,171.4 1,042.7
Long-term Debt, net 682.3 640.1 131.5 175.2 138.7 312.5
Asset-Backed Debt 139.7 131.1 13.2 72.1 244.8 539.1
Long-term Loan (Foreign Currency) 1,121.1 1,051.8 969.0 780.1 690.1 55.9
Guaranteed Loans, net 60.8 57.0 60.8 64.3 67.4 71.4
Long-term Obligation under
Installment Purchase, net 273.2 256.3 546.4 655.0 854.1 1,240.9
Obligations under Capital Leases 2,352.5 2,207.1 2,144.3 2,590.1 2,879.4 3,354.4
Severance & Retirement Benefits 495.7 465.1 661.5 682.6 651.8 599.4
Others 455.4 427.3 217.0 193.8 151.3 119.0
Total Liabilities 11,451.4 10,743.7 9,209.3 9,539.7 9,927.9 10,758.9
Capital Stock 391.0 366.8 363.3 363.3 363.3 363.3
Capital Surplus 3,204.8 3,006.7 3,007.0 3,007.0 3,007.0 3,146.9
Retained Earnings 1,123.6 1,054.2 1,053.8 694.7 511.3 (139.9)
Capital Adjustments (20.3) (19.0) (48.7) (36.2) (70.6) (14.1)
Total Stockholders’ Equity 4,699.1 4,408.7 4,375.4 4,028.9 3,811.1 3,356.3
Total Liabilities and
Stockholders’ Equity 16,150.5 15,152.4 13,584.7 13,568.6 13,739.0 14,115.2
FINANCIAL RATIOS (%)
Interest Coverage Ratio (Times) 0.22 1.22 1.11 0.96 0.72
Return on Average Equity 0.2 9.11 5.11 5.83 Net Loss
Return on Average Assets 0.1 2.82 1.47 3.74 Net Loss
Debt-to-Equity Ratio 243.7 210.5 236.8 260.5 320.6
EBITDAR Margin 19.4 19.3 19.3 20.5 22.7
Fixed Charge Coverage Ratio (Times) 2.24 2.03 2.03 1.86 1.67
PER SHARE DATA
Earnings per Share 148.0 5,725 2,989 7,765 (3,607)
(1) Korean Won figures are translated, solely for the convenience of readers into U.S. dollars at KRW 938.2: US$ 1.00, the prevail-ing rate as of December 31, 2007.
MANAGEMENT’S DISCUSSION & ANALYSIS
FINANCIAL SECTION
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 condi-
tion, 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.
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 slow-
down 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 invest-
ments made in the semiconductor
equipment and ATM, facility invest-
ments were very robust, increasing by
11.4% during the first half of 2007, to be
finally adjusted to a 7.5% increase year-
on-year. While construction invest-
ments 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 sec-
tors, with the housing sector continuing
its sluggish trend due to stringent regu-
lations on real estate. Due to the struc-
tural weakeness in the manufacturing
I. Executive Summary1. Industry Summary
*Source: National Statistical Office
GDP Growth Rate
048 · 049KOREAN AIR ANNUAL REPORT 2007
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, ship-
building, 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 bil-
lion 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, partic-
ularly 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$)
Operating Profits Net Profits
2008 2007 2006 2005 2008 2007 2006 2005
Global 15.3 16.3 10.2 4.3 5.0 5.6 -0.5 -3.2
Regions
North America 8.4 9.3 5.6 -0.3 2.2 2.7 -3.7 -6.7
Europe 5.8 6.1 3.5 3.0 2.0 2.1 1.8 1.6
Asia-Pacific 0.8 0.7 1.4 1.5 0.6 0.7 1.7 2.1
Middle East 0.3 0.4 0.2 0.4 0.2 0.2 0.1 0.2
Latin America -0.1 -0.2 0.1 0.1 0.0 -0.1 0.1 -0.1
Africa 0.0 0.1 -0.5 -0.4 -0.1 -0.1 -0.5 -0.4
Korean Air 0.8 0.6 0.5 0.4 0.3 0.01 0.4 0.2*Source: ICAO data to 2005. IATA forecasts 2006 - 2007. Korean Air data comes from the Company and Industry Reports bySecurities Companies.
MANAGEMENT’S DISCUSSION & ANALYSIS
FINANCIAL SECTION
2. Korean Air’s Summary
of Operations
While the Korean domestic passenger traffic decreased by 2.0% to 16,340,000 passengers, international pas-
senger 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)
2007 2006 2005
Domestic Passengers 16,837 17,181 17,158
Growth Rate -2.0 0.1% -9.2%
International Passengers 36,861 32,707 29,684
Growth Rate 12.7% 10.2% 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)
2007 2006 2005
International Cargo 3,138 2,854 2,617
Growth Rate 10% 9.1% 1.9%
*Source: The Ministry of Construction and Transportation
Korean Air’s 2007 Air Transportation Growth Rate
Passenger Cargo
Available Seat Revenue Passenger Available Freight Ton Freight TonKilometers (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 rev-
enues 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-
050 · 051KOREAN AIR ANNUAL REPORT 2007
II. Results of Operations1. Overview
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 reflect-
ed 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 lia-
bilities 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.
Despite challenges at home and abroad in 2007, Korean Air was able to achieve impressive results last year
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 per-
formance 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 numer-
ous 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.
MANAGEMENT’S DISCUSSION & ANALYSIS
FINANCIAL SECTION
Operating Revenues
Revenue Breakdown by Business
(In billions of KRW)
2007 2006 2005 2004 2003
Composition
Domestic Passenger 585.5 6.6% 612.2 618.5 634.2 704.6
International Passenger 4,631.6 52.6% 4,144.8 3,732.5 3,372.7 2,765.5
Cargo 2,533.0 28.7% 2,370.8 2,321.7 2,327.4 1,924.1
Aerospace 235.1 2.7% 211.6 187.9 201.3 186.1
Catering 58.4 0.7% 51.3 49.4 41.7 37.2
Hotel/Limousine 35.2 0.4% 36.5 34.6 36.6 65.8
Others 733.2 8.3% 650.6 639.6 597.0 493.9
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 operat-
ed regular flights to 14 Korean cities, and 101 cities in 36 countries. Korean Air transported a total of 22,830 thou-
sand 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
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.
Revenue Breakdown by Business
052 · 053KOREAN AIR ANNUAL REPORT 2007
Revenue Breakdown by Routes
<Passenger> (%)
2007 2006 2005 2004 2003
Domestic 11.2 12.9 15.1 17.0 21.6
Japan 12.9 13.4 14.1 14.6 13.2
China* 10.1 9.3 9.6 6.8 5.5
Southeast Asia 13.0 12.5 10.7 12.6 12.1
Oceania 6.4 6.4 6.5 6.6 7.7
North America 29.7 29.3 29.1 28.4 26.9
Europe / Middle East Asia 16.7 16.2 14.8 14.0 12.9
Total 100.0 100.0 100.0 100.0 100.0
* Passengers on the China route witnessed a significant jump, whereas Southeast Asian routes recorded a decrease in passengers in2005, mainly due to Hong Kong being classified as China from 2005.
<Cargo> (%)
2007 2006 2005 2004 2003
Domestic 1.0 1.2 1.4 1.5 1.8
Japan 4.1 4.7 5.6 5.3 5.3
China* 8.3 7.5 11.8 4.9 3.8
Southeast Asia 14.0 16.7 12.0 17.9 19.7
Oceania 2.4 1.3 1.1 1.3 1.8
North America 41.8 42.7 38.1 41.6 43.1
Europe / Middle East Asia 28.4 25.8 30.0 27.6 24.6
Total 100.0 100.0 100.0 100.0 100.0
* Hong Kong is classified as China from 2005.
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 con-
tributing 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 Busan-
Manila.
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.
2. Operating Results
by Segment
MANAGEMENT’S DISCUSSION & ANALYSIS
FINANCIAL SECTION
3. Operating Income
4. Operating Expenses
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 posi-
tion 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 open-
ing 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 com-
prised 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.
In 2007, Korean Air achieved growth in operating income of 28% to KRW 636.8 billion from KRW 497.4 bil-
lion 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.
Operating Expenses
(In billions of KRW)
2007 2006 2005 2004 2003
Composition
Jet Fuel* 2,606.4 38.4% 2,371.0 2,022.3 1,588.2 1,096.9
Maintenance 313.2 4.6% 230.4 289.3 247.0 262.9
Labor 1,079.4 15.9% 1,010.1 949.8 792.3 724.0
Ground Handling 293.8 4.3% 278.1 262.5 265.8 237.1
Landing Fee 229.0 3.4% 213.2 202.3 201.0 178.9
Rental 366.6 5.4% 389.8 357.6 433.0 442.7
Depreciation 706.9 10.4% 675.5 676.5 654.9 638.3
Insurance 31.4 0.5% 45.7 61.5 86.7 87.6
Others 1,162.6 17.1% 1,090.7 1,070.1 1,273.0 1,095.3
Total 6,789.3 100.0% 6,304.5 5,891.9 5,541.9 4,763.7
* Although depreciation, rental fees and labor costs are regarded as fixed costs in the airline industry, jet fuel costs should also beincluded as operating expenses since the amount of jet fuel consumed is pre-determined based on flight schedules.
054 · 055KOREAN AIR ANNUAL REPORT 2007
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 bil-
lion 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 glob-
al 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 bar-
rels 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.
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)
2007 2006 2005 2004 2003
General Administration 4,315 4,190 4,203 3,963 3,946
Pilots / Flight Attendants 5,034 5,005 5,143 5,281 5,471
Technicians 5,174 5,193 5,386 5,386 5,373
Others 367 367 304 364 404
Total 14,890 14,755 15,036 14,994 15,194
Jet Fuel Consumption
(Millions Gallons)
MANAGEMENT’S DISCUSSION & ANALYSIS
FINANCIAL SECTION
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 adjust-
ed 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
Type 2007 2006 2005 2004 2003
Passenger B747-200/300 0 0 0 1 1
B747-400 24 26 24 24 24
B777-200/300 20 16 15 13 13
A330-200/300 19 19 19 19 19
A300-600 8 9 10 10 10
B737-800/900 32 31 29 29 25
F-100 0 0 0 0 4
Sub-total 103 101 97 96 96
Cargo B747-400F 21 19 16 15 12
B747-200/300F 0 0 3 3 5
A300-600RSF 2 1 0 0 0
MD-11F 0 0 0 3 4
Sub-total 23 20 19 21 21
Total 126 121 116 117 117
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.
056 · 057KOREAN AIR ANNUAL REPORT 2007
5. Selling, general and
administrative
expenses
6. Non-Operating
Income / Expenses
Selling, General & Administrative (SG&A) expenses also increased to KRW1,385.8 billion from KRW 1,276.0 bil-
lion, 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 2006 2005 2004 2003
1,386 1,276.0 1,259.8 1,284.9 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 mis-
cellaneous 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)
2007 2006
Non-operating Income 338.0 676.9
Interest Income 28.2 29.3
Dividend Income 2.4 5.2
Gain on Foreign Currency Transaction 67.2 80.9
Gain on Foreign Currency Translation 28.6 429.2
Gain on Disposal of Property, Plant and Equipment 116.6 26.3
Gain on Equity-method 74.4 81.4
Others 20.6 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.
2007 2006
Non-operating Expenses 882.5 686.4
Interest Expenses 425.1 407.5
Loss on Foreign Currency Transactions 23.3 22.3
Loss on Foreign Currency Translation 87.8 79.8
Loss on Disposal of Property, Plant and Equipment 29.1 41.8
Loss on Equity-method 4.3 7.5
Loss on Valuation of Interest Rate Swaps 0 2.1
Others 312.9 132.9
Income Before Tax 92.3 487.9
MANAGEMENT’S DISCUSSION & ANALYSIS
FINANCIAL SECTION
7. Financial Ratios
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.
2007 2006Net Income
Income Before Tax 92.3 487.9
Extraordinary Income - -
Income Tax Expense 81.6 104.9
Net Income 10.7 383.0
Financial Ratios
(%)
2007 2006 2005 2004 2003
Debt-to-Equity Ratio 243.7 210.5 236.8 260.5 320.6
EBITDAR Margin 19.4 19.3 19.3 20.5 22.7
PBR 117.5 54.2 52.9 33.1 36.8
As a result of increases in current liabil-
ities by 21.8% and in non-current lia-
bilities by 14.2%, liabilities increased by
16.7% last year to KRW 10,743.7 bil-
lion. 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 attrib-
utable 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.
Debt-to-Equity Ratio(%)
058 · 059KOREAN AIR ANNUAL REPORT 2007
8. Debt Structure and
Hedging Strategy
The EBITDAR margin stood at 19.4% in 2007, and the fixed charge coverage ratio at 2.2, while PBR significant-
ly rose 62.7%p to 117.5% from 52.9% of the previous year.
Debt by Currency Type
Currency Portion Floating vs. FixedUSD 57.1% 64.1% : 35.9%
KRW 38.1% 4.9% : 95.1%
JPY 4.8% 37.5% : 62.5%
Total 100% 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.
Assets
(In billions of KRW)
2007 2006 Change (%)Current Assets 1,982 1,474.1 34.5%
Cash & Short-term Financial Instruments 704.8 468.9 50.3%
Trade Receivables 694.6 602.6 15.3%
Inventories 279.2 220.8 26.4%
Other Current Assets 303.4 181.8 66.9%
Non-current Assets 13,170.5 12,110.6 8.6%Investment Assets 1,664.6 705.4 136.0%
Property, Plant & Equipment, net of Accumulated Depreciation 10,869.7 10,749.8 1.1%
Intangible Assets, net of Accumulated Amortization 232.1 196.8 18.0%
Other Non-current Assets 404.1 458.7 -11.9%
Total Assets 15,152.4 13,584.7 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.
III. Financial Condition1. Assets
MANAGEMENT’S DISCUSSION & ANALYSIS
FINANCIAL SECTION
3. Shareholders’ Equity
4. Cash Flows: Operating,
Investing, Financing
Activities
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.
Liabilities
Total liabilities grew 16.7% to KRW 10,743.7 billion from KRW 9,209.3 billion in 2006. Long-term obliga-
tions 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 bil-
lion 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.
Shareholders’ Equity
(In billions of KRW)
2007 2006
Capital Stock 366.8 363.3
Capital Surplus 3,006.7 3,007.0
Retained Earnings 1,054.2 1,053.8
Capital Adjustment (19.0) (48.7)
Total Shareholders’ Equity 4,408.7 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.
Cash Flows
(In billions of KRW)
2007 2006
Cash Flow from Operating Activities 672.9 1,014.5
Cash Flow from Investing Activities (1,687.8) (970.5)
Cash Flow from Financing Activities 1,249.6 (167.8)
Increase (Decrease) in Cash 234.8 (123.8)
Cash and Cash Equivalents at Year-end 688.5 453.7
2. Liabilities
060 · 061KOREAN AIR ANNUAL REPORT 2007
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 bil-
lion), 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 non-
cash 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 wit-
nessing 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, mark-
ing 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 hold-
ings grew by KRW 234.8 billion to stand at KRW 688.5 billion as of the end of fiscal 2007.
MANAGEMENT’S DISCUSSION & ANALYSIS
FINANCIAL SECTION
Despite the new government’s pledge to achieve a 6 percent growth target and create 350,000 new jobs, cur-
rent 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 dis-
posable 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 econ-
omy 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 deregula-
tion 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 strength-
en and retain a power position in the China cargo market. Our cargo business will also be able to see the
IV. Outlook for 2008
062 · 063KOREAN AIR ANNUAL REPORT 2007
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 busi-
ness 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 contribu-
tions 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
This audit report is effective as of February 27, 2008, the auditors’ report date. Accordingly, certain material subsequent events or cir-
cumstances 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.
ERNST & YOUNG HAN YOUNG Phone : 3787-6600Taeyoung Bldg., 3F~8F Fax : 783-589010-2, Yeoido-dong, Youngdeungpo-guSeoul 150-777 Korea
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 state-
ments of changes in equity for the year ended December 31, 2007, all express in Korean won. These financial statements are the respon-
sibility 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 misstate-
ment. 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 earn-
ings 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 princi-
ples 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 account-
ing principles and auditing standards and their application in practice.
February 27, 2008
064 · 065KOREAN AIR ANNUAL REPORT 2007
BALANCE SHEETS
As of December 31, 2006 and 2007 2006 2007 2007
ASSETS
Current assets:
Cash and cash equivalents (Note 3) ₩ 453,663 ₩ 688,476 US$ 733,826
Short-term financial instruments (Note 3) 15,209 16,280 17,352
Short-term investment securities (Note 4) 3,625 268 286
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) 602,626 694,641 740,398
Other accounts receivable, less allowance for doubtful
accounts of ₩166 million as of December 31, 2007
(₩210 million as of December 31, 2006) 35,296 27,558 29,373
Inventories, net of valuation allowance (Note 5) 220,805 279,184 297,574
Advance payments 32,490 106,084 113,072
Prepaid expenses 60,312 74,279 79,172
Accrued income, less allowance for doubtful accounts of
₩799 million as of December 31, 2007
(₩389 million as of December 31, 2006) 42,091 83,415 88,910
Short-term derivative instrument assets (Note 13) 7,962 10,737 11,444
Current portion of deferred income tax assets (Note 17) - 1,031 1,099
Total current assets 1,474,079 1,981,953 2,112,506
Non-current assets:
Long-term financial instruments (Note 3) 16 14 15
Long-term investment securities (Notes 6 and 14) 80,963 99,592 106,152
Equity method investments (Notes 7 and 14) 624,395 1,564,986 1,668,073
Long-term loans, less allowance for doubtful accounts of
₩767 million as of December 31, 2007 110,378 80,679 85,993
(₩1,064 million as of December 31, 2006)
Guarantee deposits (Note 21) 128,838 163,860 174,654
Deferred income tax assets (Note 17) 172,482 125,792 134,078
Long-term derivative instrument assets (Note 13) 8,669 3,864 4,119
Property, aircraft and equipment, net (Notes 8, 13, 14 and 23) 10,749,825 10,869,686 11,585,681
Intangible assets, net (Notes 9, 14 and 23) 196,756 232,113 247,402
Other assets 38,304 29,892 31,861
Total non-current assets 12,110,626 13,170,478 14,038,028
Total assets ₩ 13,584,705 ₩ 15,152,431 US$ 16,150,534
(Continued)
See accompanying notes.
U. S. dollars in thousands(Note 2)Korean won in millions
BALANCE SHEETS (CONTINUED)
FINANCIAL SECTION
As of December 31, 2006 and 2007 2006 2007 2007
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts and notes payable (Note 21) ₩ 229,043 ₩ 195,706 US$ 208,597
Short-term borrowings (Notes 11 and 14) 369,547 529,882 564,786
Other accounts payable 36,226 73,709 78,564
Advance receipts from customers 375,673 485,441 517,417
Withholdings 82,015 89,541 95,439
Accrued expenses 462,382 473,934 505,152
Income taxes payable 42,508 24,273 25,872
Current portion of long-term liabilities, net of discount on
bonds and present value discount (Notes 12, 13 and 14) 1,031,363 1,368,464 1,458,606
Current portion of obligations under capital leases 362,155 406,418 433,189
(Notes 12, 13, 14 and 21)
Short-term derivative instrument liabilities (Note 13) 3,767 1 1
Current portion of deferred income tax liabilities (Note 17) 27 - -Other current liabilities 227 377 402
Total current liabilities 2,994,933 3,647,746 3,888,025
Non-current liabilities:
Bonds, net of discount on bonds (Notes 12 and 14) 1,470,608 1,860,127 1,982,655
Long-term loans (Notes 12, 14 and 21) 1,100,519 1,691,851 1,803,295
Long-term obligations under installment purchases, net of
present value discount (Notes 12 ,14 and 21) 546,435 256,290 273,172
Obligations under capital leases
(Notes 12, 13, 14 and 21) 2,144,349 2,207,080 2,352,462
Guaranteed loans, net of present value discount (Notes 12 and 14) 60,836 57,032 60,789
Asset-backed securitization loans (Note 12) 13,160 131,069 139,703
Long-term withholdings 48,073 47,078 50,179
Long-term non-trade payable - 187,640 200,000
Severance and retirement benefits (Note 15) 661,470 465,109 495,746
Unredeemed mileage liabilities 168,876 192,659 205,350
Total non-current liabilities 6,214,326 7,095,935 7,563,351
Total liabilities ₩ 9,209,259 ₩ 10,743,681 US$ 11,451,376
Commitment and contingercies (Note 12 and 13)
(Continued)
See accompanying notes.
U. S. dollars in thousands(Note 2)Korean won in millions
066 · 067KOREAN AIR ANNUAL REPORT 2007
U. S. dollars in thousands(Note 2)Korean won in millions
As of December 31, 2006 and 2007 2006 2007 2007
LIABILITIES AND STOCKHOLDERS' EQUITY (CONT'D)
Stockholders' equity (Note 16):
Capital stock:
Common stock 356,447 359,858 383,562
Preferred stock 6,896 6,896 7,350
363,343 366,754 390,912
Capital surplus:
Paid-in capital in excess of par value 191,095 190,823 203,393
Asset revaluation surplus 2,815,926 2,815,926 3,001,413
3,007,021 3,006,749 3,204,806
Capital adjustments:
Treasury stock (Note 16) (65,399) (65,399) (69,707)
(65,399) (65,399) (69,707)
Accumulated other comprehensive income:
Gain on valuation of long-term investment securities (Note 18) 23,564 31,166 33,219
Gain (loss) on valuation of derivative instruments (Note 6) (2,534) 1,321 1,408
Equity adjustment arising from
equity method investment(Note 13) (4,341) 9,953 10,609
Gain on valuation of other non-current assets (Note 7) - 3,976 4,238
16,689 46,416 49,474
Retained earnings:
Appropriated 574,200 925,200 986,144
Unappropriated 479,592 129,030 137,529
1,053,792 1,054,230 1,123,673
Total stockholders' equity 4,375,446 4,408,750 4,699,158
Total liabilities and stockholders' equity ₩ 13,584,705 ₩ 15,152,431 US$16,150,534
See accompanying notes.
BALANCE SHEETS (CONTINUED)
STATEMENTS OF INCOME
FINANCIAL SECTION
Years ended december 31, 2006 and 2007 2006 2007 2007
Operating revenues (Notes 21, 23 and 24):
Passenger ₩ 4,757,007 ₩ 5,217,127 US$ 5,560,783
Cargo 2,370,842 2,532,957 2,699,805
Others 950,022 1,061,905 1,131,854
8,077,871 8,811,989 9,392,442
Operating expenses (Notes 9, 13, 21 and 22):
Flight operations 3,834,840 4,141,629 4,414,441
Maintenance and overhaul 446,421 541,690 577,372
Station and ground operations 724,219 752,948 802,545
Passenger and cargo services 774,533 799,601 852,271
Others 524,467 553,449 589,905
6,304,480 6,789,317 7,236,534
Gross profit 1,773,391 2,022,672 2,155,908
Selling and administrative expenses (Notes 9 and 22) 1,276,036 1,385,835 1,477,121
Operating income 497,355 636,837 678,787
Other income (expenses):
Interest income 29,263 28,166 30,022
Dividend income 5,231 2,408 2,567
Interest expense (407,534) (425,071) (453,071)
Bad debt expense - (410) (437)
Reversal of allowance for doubtful accounts 480 342 364
Gain on foreign exchange transactions, net 58,629 43,955 46,850
Gain (loss) on foreign currency translation, net 349,431 (59,253) (63,156)
Equity in earnings of equity method investments, net 73,897 70,131 74,751
Loss on disposal of equity method investments, net (2,412) (14,590) (15,551)
Gain (loss) on valuation of derivative instruments, net (1,100) 2,534 2,701
Gain (loss) on settlement of derivative instruments, net (17,526) 369 393
Gain (loss) on valuation of interest rate swap contracts, net (2,062) 725 772
Gain (loss) on valuation of long-term obligations
under installment purchases, net 2,062 (725) (772)
Gain (loss) on disposal of property, aircraft and equipment, net (15,484) 87,490 93,253
(Continued)
See accompanying notes.
U. S. dollars in thousands(Note 2)Korean won in millions
068 · 069
Years ended december 31, 2006 and 2007 2006 2007 2007
Other income (expenses) (cont’d):
Impairment loss on property, aircraft and equipment ₩ (58,206) ₩ - US$ -Gain on disposal of investments, net 416 509 542
Gain on assets contributed - 1,787 1,905
Donations (12,798) (10,794) (11,505)
Others, net (11,772) (272,124) (290,049)
(9,485) (544,551) (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.
U. S. dollars in thousands(Note 2)
Korean won in millions
STATEMENTS OF INCOME (CONTINUED)
STATEMENTS OF APPROPRIATIONS OF RETAINED EARNINGS
FINANCIAL SECTION
(Years ended december 31, 2006 and 2007) 2006 2007 2007
Retained earnings before appropriations:
Unappropriated retained earnings carried forward from the
prior year ₩ 96,580 ₩ 118,290 US$ 126,081
Net income for the year 383,012 10,740 11,448
479,592 129,030 137,529
Transfer from other reserve
Reserve for improvement of financial position - 69,700 74,291
479,592 198,730 211,821
Appropriations (2007-proposed) (Notes 16 and 20):
Legal reserve 1,000 5,000 5,329
Cash dividends 10,302 34,519 36,793
Reserve fot research and human resources development reserve 130,000 - -Reserve for foreign currency valuation 100,000 70,000 74,611
Reserve for facility usage 120,000 - -361,302 109,519 116,733
Unappropriated retained earnings carried
forward to the next year ₩ 118,290 ₩ 89,211 US$ 95,087
See accompanying notes.
U. S. dollars in thousands(Note 2)Korean won in millions
070 · 071KOREAN AIR ANNUAL REPORT 2007
Years ended december 31, 2006 and 2007
Accumulated
otherCommon Capital Capital comprehensive Retained
stock surplus adjustments income earnings Total Total
As of January 1, 2007 ₩ 363,343 ₩ 3,007,021 ₩(65,399) ₩ 16,689 ₩1,053,792 ₩4,375,446 ₩4,663,660
Cash dividends - - - - (10,302) (10,302) (10,981)
Stock dividends 3,441 - - - - 3,441 3,635
Net income for the year - - - - 10,740 10,740 11,448
Paid-in captal in excess
of par value - (272) - - - (272) (290)
Gain on valuation of long-term
investment securities (Note 6) - - - 7,602 - 7,602 8,103
Gain on valuation of
derivative instruments - - - 3,855 - 3,855 4,109
Equity adjustment arising from
equity method investment (Note 7) - - - 14,294 - 14,294 15,236
Gain on valuation of other
non-current assets - - - 3,976 - 3,976 4,238
As of December 31, 2007 ₩ 366,754 ₩ 3,006,749 ₩(65,399) ₩ 46,416 ₩1,054,230 ₩4,408,750 US$4,699,158
See accompanying notes.
STATEMENTS OF CHANGES IN STOCKHOLDERS’EQUITY
U. S. dollars in thousands(Note 2)Korean won in millions
STATEMENTS OF CASH FLOWS (CONTINUED)
FINANCIAL SECTION
Years ended december 31, 2006 and 2007 2006 2007 2007
Cash flow from operating activities:
Net income ₩ 383,012 ₩ 10,740 US$ 11,448
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 696,875 729,259 777,296
Amortization 13,287 17,120 18,247
Provision for severance and retirement benefits 150,162 128,649 137,124
Provision for allowance for doubtful accounts 172 940 1,002
Reversal of allowance for doubtful accounts (480) (342) (364)
Bad debt expense - 410 437
Mileage expenses 23,596 23,783 25,349
Amortization of present value discounts 54,518 46,696 49,772
Amortization of discounts on bonds 17,750 17,113 18,240
Interest income (15,650) (10,630) (11,330)
Dividend income (44) - -Loss (gain) on foreign currency translation, net (360,760) 67,936 72,411
Equity in earnings of the equity method investments, net (73,897) (70,131) (74,751)
Loss on disposal of the equity method investments, net 2,412 14,590 15,551
Loss (gain) on valuation of derivative instruments, net 1,100 (2,534) (2,701)
Loss (gain) on valuation of interest rate swap contracts, net 2,062 (725) (772)
Loss (gain) on valuation of long-term obligations (2,062) 725 772
under installment purchases, net
Impairment loss on property, aircraft and equipment 58,206 - -Loss (gain) on disposal of property, aircraft and equipment, net 15,484 (87,490) (93,253)
Gain on disposal of the investments (416) (509) (542)
Others - (2,058) (2,194)
Changes in operating assets and liabilities:
Trade accounts and notes receivable (41,741) (80,047) (85,320)
Inventories (24,672) (57,594) (61,388)
Advance payments 35,124 (74,368) (79,267)
Prepaid expenses 760 (13,966) (14,886)
Accrued income 6,191 (41,411) (44,139)
Other accounts receivable 13,595 7,783 8,296
Derivative instrument assets 4,421 (338) (360)
Deferred income tax assets 59,608 38,597 41,139
Other long-term assets 3,041 8,455 9,012
Trade accounts and notes payable 17,009 (35,609) (37,955)
Other accounts payable 3,467 33,110 35,291
(Continued)
See accompanying notes.
U. S. dollars in thousands(Note 2)Korean won in millions
072 · 073KOREAN AIR ANNUAL REPORT 2007
Years ended december 31, 2006 and 2007 2006 2007 2007Changes in operating assets and liabilities (continued):
Advance receipts from customers ₩ 45,949 ₩ 109,768 US$ 116,999Withholdings 2,686 6,673 7,113 Accrued expenses 52,002 (1,605) (1,710)Income taxes payable 42,508 (18,236) (19,437) Other current liabilities (211) 150 160Withdrawal of severance and retirement benefits
from the Korean National Pension Corporation 3,445 3,172 3,380 Derivative instrument liabilities 119 59 63 Long-term withholdings 134 (1,611) (1,717) Long-term non-trade payable - 232,000 247,281 Payment of severance and retirement benefits (133,047) (144,976) (154,526)Deposits for severance and retirement benefits (41,216) (180,620) (192,517)
Total adjustments 631,487 662,188 705,806 Net cash provided by operating activities 1,014,499 672,928 717,254
Cash flows from investing activities:Decrease (increase) in short-term financial instruments, net 3,658 (1,077) (1,148) Decrease in short-term investment securities 5,038 3,626 3,864Decrease (increase) in long-term investment securities, net 29 (7,944) (8,467) Acquisition of equity method investments (11,000) (877,827) (935,651)Decrease in long-term loans, net 28,074 37,109 39,554 Increase in guarantee deposits, net (7,564) (25,559) (27,243)Proceeds from disposal of property, aircraft and equipment 96,942 215,670 229,876Acquisition of property, aircraft and equipment (1,094,611) (1,023,063) (1,090,452)Acquisition of intangible assets (16,360) (19,965) (21,280)Dividend income 25,313 11,272 12,015 Decrease in other assets - 7 8
Net cash used in investing activities (970,481) (1,687,751) (1,798,924)
Cash flows from financing activities:Proceeds from short-term borrowings, net 51,654 156,701 167,023 Proceeds from issuance of bonds 672,479 1,070,718 1,141,247Proceeds from long-term loans 512,712 802,255 855,100Proceeds from (repayment of) obligations under capital leases, net (312,862) 33,686 35,905Proceeds from asset-backed securitization loans - 206,706 220,322Repayment of current maturities of long-term liabilities (1,067,817) (1,013,268) (1,080,013)Stock issue costs - (272) (290)Payment of dividends (23,945) (6,890) (7,344)
Net cash provided by (used in) financing activities (167,779) 1,249,636 1,331,950
Net increase (decrease) in cash and cash equivalents (123,761) 234,813 250,280Cash and cash equivalents at the beginning of the year 577,424 453,663 483,546 Cash and cash equivalents at the end of the year ₩ 453,663 ₩ 688,476 US$ 733,826
See accompanying notes.
STATEMENTS OF CASH FLOWS (CONTINUED)
U. S. dollars in thousands(Note 2)Korean won in millions
NOTES TO FINANCIAL STATEMENTS(December 31, 2006 and 2007)
FINANCIAL SECTION
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, mainte-
nance 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.
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 state-
ments 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.
1. Organization and
business
2. Summary of
significant
accounting policies
074 · 075KOREAN AIR ANNUAL REPORT 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 ser-
vices 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 sta-
tus 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 instru-
ments 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 invento-
ry 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.
NOTES TO FINANCIAL STATEMENTS(December 31, 2006 and 2007)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)(December 31, 2006 and 2007)
FINANCIAL SECTION
Investment securities
Investments in securities within the scope of SKAS 8 Investments in Securities are classified as either trading, held-to-
maturity 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 classifica-
tion 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 ini-
tial 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 recog-
nized 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 securi-
ties 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.
076 · 077KOREAN AIR ANNUAL REPORT 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 accu-
mulated 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:
Years
Buildings 40
Aircraft and engine 20
Leased aircraft and engine 20
Others 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.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)(December 31, 2006 and 2007)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)(December 31, 2006 and 2007)
FINANCIAL SECTION
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 appor-
tioned 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 finan-
cial 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.
078 · 079KOREAN AIR ANNUAL REPORT 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 credit-
ed 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 effective-
interest-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 com-
mitment 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 lia-
bilities at the date of the financial statements, and the reported amounts of revenues and expenses during the report-
ing period. Actual results could differ from those estimates.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)(December 31, 2006 and 2007)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)(December 31, 2006 and 2007)
FINANCIAL SECTION
3. Cash and cash equivalents
and financial instruments
4. Short-term investment
securities
5. Inventories
Cash and cash equivalents, and financial instruments as of December 31, 2006 and 2007 consist of the following:
U. S. dollars in thousandsKorean won in millions(Note 2)
2006 2007 2007
Cash on hand ₩ 634 ₩ 1,280 US$ 1,364
Checking and passbook accounts 30,267 43,727 46,607
Money market funds 153,115 282,108 300,691
Other deposits 11,423 12,051 12,845
Foreign currency deposits 273,433 365,590 389,672
Guarantee deposits for the maintenance
of checking accounts 16 14 14
468,888 704,770 751,193
Less:
Short-term financial instruments (15,209) (16,280) (17,352)
Long-term financial instruments (16) (14) (15)
Cash and cash equivalents ₩ 453,663 ₩ 688,476 US$ 733,826
Short-term investment securities as of December 31, 2006 and 2007 consist entirely of government and public
bonds.
Inventories as of December 31, 2006 and 2007 consist of the following:
U. S. dollars in thousandsKorean won in millions(Note 2)
2006 2007 2007
Merchandise ₩ 13,864 ₩ 14,412 US$ 15,361
Work-in-progress 52,030 58,472 62,324
Raw materials 26,589 36,924 39,357
Supplies 132,101 163,899 174,694
Materials-in-transit 4,603 8,742 9,318
229,187 282,449 301,054
Less valuation allowance (8,382) (3,265) (3,480)
₩ 220,805 ₩ 279,184 US$ 297,574
Long-term investment securities as of December 31, 2006 and 2007 consist of the following:
U. S. dollars in thousandsKorean won in millions(Note 2)
2006 2007 2007
Available-for-sale securities ₩ 79,649 ₩ 96,787 US$ 103,162
Held-to-maturity securities 1,314 2,805 2,990
₩ 80,963 ₩ 99,592 US$ 106,152
6. Long-term investment
securities
080 · 081KOREAN AIR ANNUAL REPORT 2007
Available-for-sales securities as of December 31, 2006 and 2007 consist of the following:
Korean won in millions
2007 2006
Equity Fair value Equityownership
Acquisition Bookor net-asset ownership
Book
(%) cost value
value (%)value
Marketable securities 1) :Hana Financial Group Inc. 0.11 ₩ 1,602 ₩ 11,767 ₩ 11,767 0.11 ₩ 11,417Hanil Cement Co., Ltd. 3.70 10,229 30,283 30,283 3.70 23,027Meritz Securities Co., Ltd. 0.96 3,283 6,773 6,773 1.04 3,211GS Home Shopping Inc. 4.50 20,226 19,849 19,849 3.69 20,075Hanjin Heavy Industries Co., Ltd. 0.08 399 5,630 5,630 0.08 1,668Hanjin Heavy Industries &Construction Holdings Co., Ltd. 0.05 148 1,037 1,037 - -
35,887 75,339 75,339 59,398Non-marketable securities1) :
The Korea Economic Daily 0.05 145 145 58 0.05 145Daehan Oil Pipeline Corporation 3.10 6,967 7,678 7,678 3.10 6,968Kihyup Finance Co., Ltd. 1.72 500 500 634 1.72 500
Cheju Convention Center, Ltd. 0.52 700 700 770 0.52 700
Korea Tourist Supply Center Inc. 0.40 81 81 90 0.40 81
Entob Co., Ltd. 6.25 1,000 1,000 1,345 6.25 1,000
Incheon United Football Club 0.52 100 100 (7) 0.52 100
Sita Inc. 0.85 406 406 406 0.85 405
Seoul Tourism Marketing 2.84 500 500 500 - -10,399 11,110 11,474 9,899
Investments in affiliated companies2) :Korea Global Logistics
System Co., Ltd. 65.00 650 650 1,495 65.00 650
Hanjin International Japan 55.00 394 394 886 55.00 394
Terminal One Management Inc. 25.00 32 32 7 25.00 32
US Cargo Sales Joint Venture, Inc 33.33 1,092 1,092 342 33.33 1,092
Global Logistics System
Asia Pacific Co., Ltd. 31.50 64 64 152 31.50 64
2,232 2,232 2,882 2,232
Beneficiary certificates 3,602 6,372 6,372 6,454
Investments in other equity securities 1,734 1,734 1,734 1,666
Total ₩53,854 ₩96,787 ₩97,801 ₩ 79,649
U. S. dollars in thousands (Note 2) US$ 57,402 US$103,162 US$ 104,2431) 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 werestated at acquisition cost. Daehan Oil Pipeline Corporation’s securities, non-marketable equity securities, are recorded at fair valueaccording to [2006-5] “Accounting for Valuation on Non-listed Equity Securities” and the difference between acquisition cost and fairvalue 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 didnot apply the equity method in accounting for these investees since the impact of using the equity method is not material to theCompany on the valuation of the investments.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)(December 31, 2006 and 2007)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)(December 31, 2006 and 2007)
FINANCIAL SECTION
The details of changes in fair value adjustments of long-term investment securities recorded in accumulated othercomprehensive income for the year ended December 31, 2007 are as follows:
Korean won in millions
January 1, Increase December 31,2007 (decrease) 2007
Hana Financial Group Inc. ₩ 9,815 ₩ 350 ₩ 10,165Hanil Cement Co., Ltd. 12,797 7,257 20,054Meritz Securities Co., Ltd. 1,210 2,280 3,490GS Home Shopping Inc. 4,706 (5,084) (377)Hanjin Heavy Industries Co., Ltd 819 4,413 5,231Hanjin Heavy Industries & Construction
Holdings Co., Ltd. 303 587 890Beneficiary certificates 2,852 (27) 2,825Daehan Oil Pipeline Corporation - 710 710Total 32,502 10,486 42,988Tax effect (8,938) (2,884) (11,822)Net Total 23,564 7,602 31,166 U. S. dollars in thousands
(Note 2) 25,116 8,103 33,219
Held-to-maturity securities are entirely comprised of government and public bonds whose annual maturities as ofDecember 31, 2006 and 2007 are as follows:
U. S. dollars in thousandsKorean won in millions
(Note 2)
2006 2007 2007More than 1 year to 5 years ₩ 1,307 ₩ 2,792 US$ 2,976 More than 5 years to 10 years 7 13 14
₩ 1,314 ₩ 2,805 US$ 2,990
082 · 083KOREAN AIR ANNUAL REPORT 2007
Equity method investments as of December 31, 2006 are as follows:
Korean won in millions
Equity ownership Acquisition cost Book value Fair value or net asset value
(%)
2007 2006 2007 2006 2007 2006 2007
Korea Airport Service Co., Ltd. 59.54 ₩ 92,052 ₩ 93,320 ₩120,448 ₩131,508 ₩120,448 ₩ 131,508
Hanjin Information Systems &
Telecommunication Co., Ltd 99.35 15,111 15,111 22,983 23,784 22,983 23,784
Topas Co., Ltd 67.35 730 730 15,386 16,644 15,386 16,644
KAL Hotel Network Co., Ltd 100.00 99,900 99,900 53,109 47,626 53,109 47,626
Hanjin Travel Service Co., Ltd. 55.82 27,788 27,788 33,255 35,743 31,932 35,743
Air Total Service Co., Ltd. 100.00 2,000 2,000 1,681 2,925 1,681 2,925
Jungseok Enterprise Co., Ltd. 24.40 54,328 54,328 57,211 55,818 52,254 53,041
Jedong Leisure Co., Ltd. 100.00 11,000 14,000 11,160 14,194 11,160 14,194
Hanjin Energy Co., Ltd. 82.52 - 854,821 - 899,433 - 895,336
Hanjin International Corporation 100.00 189,078 189,078 21,523 18,638 21,523 18,638
Korean Air Lease & Finance
Co., Ltd. 100.00 891 891 144,709 163,591 114,308 118,245
Hanjin Shipping Co., Ltd. 1) 6.04 41,237 57,720 140,568 150,255 152,628 156,517
Keoyang Shipping Co., Ltd. 1) 1.03 4,640 4,640 2,362 2,572 2,362 2,572
Grandstar Cargo Int’l
Airlines Co., Ltd.2) 25.00 - 2,255 - 2,255 - 2,255
₩538,755 ₩1,416,582 ₩ 624,395 ₩1,564,986 ₩ 599,774 ₩1,519,028
U. S. dollars in thousands (Note 2) US$574,297 US$1,509,893 US$ 678,174 US$1,668,073 US$ 651,433 US$1,619,0881) 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 ofUS$2.4 million through a joint venture with Sinotrans Air Transportation Development, one of China’s biggest logistics com-panies.
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 Loss on Other
earnings(loss) deemed Other comprehensive
Jan.1 Increase Dividends of investee disposal2) changes income Dec. 31
Korea Airport Service Co., Ltd.₩ 120,449 ₩ 1,269 ₩ (933) ₩ 7,331 ₩ - ₩ 20 ₩ 3,372 ₩ 131,508
Hanjin Information Systems &
Telecommunication Co., Ltd 22,982 - (348) 1,751 - (700) 99 23,784
Topas Co., Ltd 15,386 - (5,388) 6,926 - (280) - 16,644
KAL Hotel Network Co., Ltd. 53,109 - - (1,864) - (3,619) - 47,626
Hanjin Travel Service Co., Ltd. 33,255 - - 2,754 - (4,952) 4,686 35,743
Air Total Service Co., Ltd. 1,681 - - 1,245 - - - 2,926
(Continued)
7. Equity method
investments
NOTES TO FINANCIAL STATEMENTS (CONTINUED)(December 31, 2006 and 2007)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)(December 31, 2006 and 2007)
FINANCIAL SECTION
Korean won in millions
Equity in Loss on Other
earnings(loss) deemed Other comprehensive
Jan.1 Increase Dividends of investee disposal2) changes income Dec. 31
Jungseok Enterprise Co., Ltd. 57,211 - (122) 121 - (4,746) 3,354 55,818
Jedong Leisure Co., Ltd. 11,160 3,000 - 50 - (14) (2) 14,194
Hanjin Energy Co., Ltd. - 854,820 - 30,685 - - 13,928 899,433
Hanjin International Corporation 21,523 - - (2,392) - 7,326 (7,819) 18,638
KALF 144,709 - - 13,305 - 9,666 (4,089) 163,591
Hanjin Shipping Co., Ltd. 140,568 16,483 (4,481) 10,014 (14,590) (644) 2,904 150,254
Keoyang Shipping Co., Ltd. 2,362 - - 206 - - 4 2,572
GrandStar Cargo Int’l
Airlines Co., Ltd. - 2,255 - - - - - 2,255
2007 ₩ 624,395 ₩ 877,827 ₩(11,272) ₩ 70,132 ₩(14,590) ₩ 2,057 ₩ 16,437 ₩1,564,986
2006 ₩ 563,067 ₩ 5,718 ₩(11,443) ₩ 78,896 ₩ - ₩ - ₩ (6,843) ₩ 624,3951) 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 issuednew common stock to third parties.
Market values of marketable equity method investments as of December 31, 2007 and 2006 are as follows:
<2007> Korean won Korean wonin units in millions
Number of Market value Marketshares per share capitalization
Korea Airport Service Co., Ltd. 1,885,134 ₩ 53,000 ₩ 99,912
Hanjin Shipping Co., Ltd. 4,481,166 39,800 191,484
<2006> Korean won Korean wonin units in millions
Number of Market value Marketshares per share capitalization
Korea Airport Service Co., Ltd. 1,866,496 ₩ 31,950 ₩ 59,635
Hanjin Shipping Co., Ltd. 4,481,166 26,400 118,303
Changes in the goodwill (negative goodwill) for the years ended December 31, 2007 and 2006 are as follows:
Korean won in millions
January 1 Increase Amortization December 31
Hanjin Travel Service Co., Ltd. ₩ 1,323 ₩ - ₩ 1,323 ₩ -
Jungseok Enterprise Co., Ltd. 4,958 - 2,181 2,777
Hanjin Shipping Co., Ltd. (12,059) 5,558 (239) (6,262)
Hanjin Energy Co., Ltd. - 4,820 723 4,097
2007 ₩ (5,779) ₩ 10,379 ₩ 3,988 ₩ 612
2006 ₩ (2,335) ₩ - ₩ 3,444 ₩ (5,779)
084 · 085KOREAN AIR ANNUAL REPORT 2007
Changes in the proportionate share of the accumulated other comprehensive income of investees arising from equi-
ty method of accounting for the years ended December 31, 2006 and 2007 are as follows:
U. S. dollars in thousandsKorean won in millions
(Note 2)
2006 2007 2007
Gain Loss Gain Loss Gain Loss
Beginning balance ₩ 20,813 ₩ (18,311) ₩ 21,250 ₩ (25,591) US$ 22,649 US$ (27,276)
Increase (decrease) 437 (7,280) 26,204 (11,910) 27,930 (12,694)
Ending balance ₩ 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 incomeAssets Liabilities
equitySales
(loss)
Korea Airport Service Co., Ltd. ₩ 352,865 ₩ 132,038 ₩ 220,827 ₩ 311,968 ₩ 12,255
Hanjin Information Systems &
Telecommunication Co., Ltd. 46,879 22,482 24,397 90,748 1,762
Topas Co., Ltd. 32,342 7,630 24,712 50,028 10,284
KAL Hotel Network Co., Ltd. 145,564 94,669 50,895 41,979 (1,864)
Hanjin Travel Service Co., Ltd. 80,696 16,434 64,262 28,636 6,162
Air Total Service Co., Ltd. 7,324 4,399 2,925 26,094 1,245
Jungseok Enterprise Co., Ltd. 279,842 49,175 230,667 30,509 7,013
Jedong Leisure Co., Ltd. 14,196 2 14,194 - 50
Hanjin Energy Co., Ltd. 2,285,520 1,200,584 1,084,936 88,858 38,059
Hanjin International Corporation 70,604 51,966 18,638 42,817 (2,393)
KALF 3,221,318 3,316,849 (95,531) 127,636 (2,128)
Hanjin Shipping Co., Ltd. 6,005,748 3,415,756 2,589,992 6,936,020 145,722
Keoyang Shipping Co., Ltd. 339,094 89,278 249,816 140,232 19,989
NOTES TO FINANCIAL STATEMENTS (CONTINUED)(December 31, 2006 and 2007)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)(December 31, 2006 and 2007)
FINANCIAL SECTION
Cost of property, aircraft and equipment and related accumulated depreciation as of December 31, 2006 and 2007
consist of the following:
U. S. dollars in thousandsKorean won in millions
(Note 2)
2006 2007 2007
Land ₩ 683,352 ₩ 593,574 US$ 632,673
Buildings 850,060 851,806 907,915
Aircraft 4,852,840 5,302,405 5,651,680
Engines 1,409,255 1,452,227 1,547,887
Leased aircraft 4,827,556 5,161,484 5,501,476
Leased engines 1,246,078 1,251,980 1,334,450
Construction in-progress 545,397 595,452 634,675
Other 823,611 846,510 902,271
15,238,149 16,055,438 17,113,027
Less accumulated depreciation (4,429,360) (5,126,718) (5,464,419)
Less accumulated impairment losses (58,964) (59,034) (62,927)
₩ 10,749,825 ₩ 10,869,686 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 AdditionsDisposals
DepreciationImpairment December
/transfers loss 31
Land ₩ 648,133 ₩ 663 ₩ 34,556 ₩ - ₩ - ₩ 683,352
Buildings 651,773 765 50,023 (20,494) (1,066) 681,001
Aircraft 2,950,464 37,003 297,975 (264,158) (57,140) 2,964,144
Engines 788,165 4,451 129,160 (84,208) - 837,568
Leased aircraft 3,761,943 7,621 159,370 (218,737) - 3,710,197
Leased engines 1,090,787 1,705 (53,657) (56,492) - 982,343
Construction
in-progress 265,133 990,830 (710,566) - - 545,397
Others 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
8. Property, aircraft and
equipment
086 · 087KOREAN AIR ANNUAL REPORT 2007
<2007> Korean won in millions
Disposals ImpairmentJanuary 1 Additions
/transfersDepreciation
lossDecember 31
Land ₩ 683,352 ₩ - ₩ (89,778) ₩ - ₩ - ₩ 593,574Buildings 681,001 1,522 272 (21,566) - 661,229Aircraft 2,964,144 2,775 379,842 (295,292) - 3,051,469Engines 837,568 9,582 33,158 (88,348) - 791,960Leased aircraft 3,710,197 17,226 383,650 (216,111) - 3,894,962Leased engines 982,343 4,160 18,756 (54,939) - 950,320Construction
in-progress 545,397 1,210,918 (1,160,863) - - 595,452Others ₩ 345,823 ₩ 53,093 ₩ (15,193) ₩ (53,003) ₩ - ₩ 330,720
₩10,749,825 ₩1,299,276 ₩(450,156) ₩(729,259) ₩ - ₩10,869,686U. 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$805,566 thousand).
As of December 31, 2006 and 2007, the Company’s insurance policies to cover losses from fire and other casualty
losses are as follows:
Korean won in millions and U. S. dollars in thousands
2006 2007Aircraft and engines US$ 9,116,904 US$ 9,056,945Buildings and machinery ₩ 1,373,993 ₩ 1,389,019Cash and investments ₩ 11,602 ₩ 11,602National properties ₩ 433,842 ₩ 475,991Others ₩ 72,068 ₩ 71,068
Changes in net book value of intangible assets for the years ended December 31, 2006 and 2007 are as follows:
<2006> Korean won in millions
January 1 Additions Amortization December 31Facility usage rights ₩ 179,374 ₩ - ₩ (10,232) ₩ 169,142Development costs 8,462 16,344 (1,482) 23,324Others 5,847 16 (1,573) 4,290
₩ 193,683 ₩ 16,360 ₩ (13,287) ₩ 196,756
<2007> Korean won in millions
January 1 Additions Amortization December 31Facility usage rights ₩ 169,142 ₩ 32,511 ₩ (10,460) ₩ 191,193Development costs 23,324 19,966 (5,090) 38,200Others 4,290 - (1,570) 2,720
₩ 196,756 ₩ 52,477 ₩ (17,120) ₩ 232,113U. S. dollars in thousands (Note 2) US$ 209,717 US$ 55,932 US$ (18,247) US$ 247,402
9. Intangible assets
NOTES TO FINANCIAL STATEMENTS (CONTINUED)(December 31, 2006 and 2007)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)(December 31, 2006 and 2007)
FINANCIAL SECTION
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.
Foreign currency denominated monetary assets and liabilities as of December 31, 2006 and 2007 are as follows:
2006 2007Korean won Korean wonForeign currencyequivalent
Foreign currencyequivalentin thousands
in millionsin thousands
in millions
Assets 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
Liabilities US$ 5,349,023 ₩ 4,972,451 US$ 5,856,507 ₩ 5,494,575
JPY 43,153,017 337,383 JPY 62,140,109 517,832
HKD 45,798 5,477 HKD 15,144 1,821
TWD 3,060 87 TWD 2,150 62
SGD 3,430 2,078 SGD 2,183 1,416
GBP 2,261 4,125 GBP 3,450 6,466
EUR 15,814 19,329 EUR 9,399 12,983
CNY 91,653 10,904 CNY 69,432 8,919
Other - 20,113 Other - 14,687
₩ 5,371,947 ₩ 6,058,761
10. Foreign currency
denominated monetary
assets and liabilities
088 · 089KOREAN AIR ANNUAL REPORT 2007
Short-term borrowings as of December 31, 2006 and 2007 are as follows:
U. S. dollarsKorean won in millions in thousands
Annual interest rate (Note 2)
in 2007 2006 2007 2007Borrowings from:
KDB1)
- Singapore branch 3M Libor+0.55% ₩ 16,733 ₩ 16,888 US$ 18,000- Korea 3M Libor+0.58~0.82%,
Won-based Int.+0.51% 72,619 142,300 151,674Kookmin Bank 3M Libor+0.48 ~0.58% 61,480 93,896 100,080
Hana Bank 3M Libor+0.7~0.85% 162,939 110,030 117,278NACF2) 3M Libor+0.39% - 106,768 113,801Samsung Life Insurance 6.80% - 20,000 21,318Samsung Fire & Marine 6.80% - 10,000 10,659
Insurance Mirae asset Life Insurance 6.75% - 30,000 31,976Woori Bank 46,480 - -Bank of Communications
Co., Ltd. - 9,296 - -₩ 369,547 ₩ 529,882 US$ 564,786
1) Korea Development Bank2) National Agricultural Cooperative Federation
BondsThe non-guaranteed bonds issued and outstanding as of December 31, 2006 and 2007 are as follows:
U.S. dollarsKorean won in millions in thousands
Issuing Annual interest rate (Note 2)Seriesdate
Maturityin 2007 2006 2007 2007
16th 04.02.05 07.02.05 - ₩ 200,000 ₩ - ₩ -17-2nd 04.05.24 07.05.24 - 100,000 - -18th 04.09.23 07.09.23 4.00% 200,000 - -19-1st 04.11.12 07.11.12 4.00% 180,000 - -19-2nd 04.11.12 09.11.12 4.00% 120,000 120,000 127,90420th 05.03.08 08.03.08 4.00% 300,000 300,000 319,76121st 05.09.15 08.09.15 4.00% 200,000 200,000 213,17422nd 05.11.24 08.11.24 3M Libor+0.95% 185,920 187,640 200,00023-1st 06.04.17 09.04.17 4.00% 150,000 150,000 159,88123-2nd 06.04.17 11.04.17 5.00% 150,000 150,000 159,88124-1st 06.09.25 09.09.25 4.00% 150,000 150,000 159,88124-2nd 06.09.25 11.09.25 4.00% 250,000 250,000 266,46825-1st 07.02.08 10.02.08 5.00% - 200,000 213,17425-2nd 07.02.08 12.02.08 5.00% - 100,000 106,58726-1st 07.05.25 10.05.25 5.00% - 100,000 106,58726-2nd 07.05.25 12.05.25 5.00% - 100,000 106,58727-1st 07.09.17 10.09.17 5.00% - 150,000 159,88127-2nd 07.09.17 12.09.17 5.00% - 50,000 53,29328th 07.10.31 10.10.31 6.01% - 200,000 213,17429-1st 07.11.12 10.11.12 5.00% - 140,000 149,22229-2nd 07.11.12 12.11.12 5.00% - 40,000 42,635
2,185,920 2,587,640 2,758,090Less discount on bonds (37,717) (42,076) (44,848)
2,148,203 2,545,564 2,713,242Less current portion of bonds, net of discount on bonds (677,595) (685,437) (730,587)
₩ 1,470,608 ₩ 1,860,127 US$ 1,982,655
12. Long-term liabilities
NOTES TO FINANCIAL STATEMENTS (CONTINUED)(December 31, 2006 and 2007)
11. Short-term
borrowings
NOTES TO FINANCIAL STATEMENTS (CONTINUED)(December 31, 2006 and 2007)
FINANCIAL SECTION
Korean won denominated long-term loans
Korean won denominated long-term loans as of December 31, 2006 and 2007 are as follows:
U. S. dollars
Korean won in millions in thousands
Annual interest rate (Note 2)
in 2007 2006 2007 2007
Long-term loans from:
KDB 4.15% ~ 5.22%,
KDB Bond+0.77% ₩ 121,480 ₩ 313,218 US$ 333,849
Hana Bank 6.47% 23,830 32,090 34,204
Kookmin Bank 3.00% 59,204 15,011 16,000
Kyobo Life Insurance 6.90% - 30,000 31,976
NACF CD Rate+0.99~1.30% - 250,000 266,468
Korea Life Insurance 6.90% - 40,000 42,635
Samsung Life Insurance 5.50% - 40,000 42,635
204,514 720,319 767,767
Less current portion (72,965) (80,234) (85,519)
₩ 131,549 ₩ 640,085 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:
U. S. dollars
Korean won in millions in thousands
Annual interest rate (Note 2)
in 2007 2006 2007 2007
Foreign currency
denominated
long-term loans from:
KDB 3M Libor+0.57~1.69% ₩ 629,503 ₩ 783,856 US$ 835,489
NACF1) 3M Libor+0.6~1.00% 204,280 188,206 200,603
EIBK2) 3M Libor+1.65% 175,575 152,174 162,198
Hana Bank 3M Libor+0.6~2.2% 59,282 50,825 54,173
Washington Mutual Federal Housing Int. 69 61 65
KALF 3M Libor+1.3% 66,191 47,113 50,216
1,134,900 1,222,235 1,302,744
Less current portion (165,930) (170,469) (181,697)
₩ 968,970 ₩ 1,051,766 US$ 1,121,0471) National Agricultural Cooperative Federation2) The Export-Import Bank of Korea
090 · 091KOREAN AIR ANNUAL REPORT 2007
Long-term obligations under installment purchasesLong-term obligations under installment purchases related to aircraft and engines as of December 31, 2006 and2007 are as follows:
U. S. dollars Korean won in millions in thousands
Annual interest rate (Note 2)
in 2007 2006 2007 2007Installment purchases
from:Wilmington 1Y Libor+0.75~0.85%
3.96%~5.16% ₩ 591,239 ₩ 551,060 US$ 587,358KE Apollo 3M Libor+0.05~0.69% ₩ 88,394 ₩ 49,562 US$ 52,826
679,633 600,622 640,184Accumulated losses on
valuation of fixed liabilities 1) 16,492 11,037 11,764696,125 611,659 651,948
Less present value discounts (97,151) (57,880) (61,692)598,974 553,779 590,256
Less current portion, net of present value discounts (52,539) (297,489) (317,084)
₩ 546,435 ₩ 256,290 US$ 273,1721) 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$192 million from KDB related to the above long-
term obligations under installment purchases as of December 31, 2007.
Obligations under capital leases
Obligations under capital leases as of December 31, 2006 and 2007 are as follows:
U. S. dollarsKorean won in millions in thousands
Annual interest rate (Note 2)
in 2007 2006 2007 2007Aircraft/Engines:
KALF 3M Libor+0.60~3.00%6M Libor+1.60~1.75%3M JPY Libor+0.15%
4.55% ~ 8.45% ₩ 2,030,085 ₩ 1,733,506 US$ 1,847,693KE Cayman
Leasing Limited 3M JPY Libor+1.39~2.20% 114,417 100,034 106,624KE Export Leasing 4.99%~5.35% 360,964 338,935 361,261KE August Ltd. 3M Libor+0.44~0.54% - 146,428 156,073KE Octavius Ltd. 3M Libor+0.63~0.70% - 294,595 314,000
Computing equipment:IBM Korea, Inc. 1,038 - -
2,506,504 2,613,498 2,785,651Less current portion (362,155) (406,418) (433,189)
₩ 2,144,349 ₩ 2,207,080 US$ 2,352,462
NOTES TO FINANCIAL STATEMENTS (CONTINUED)(December 31, 2006 and 2007)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)(December 31, 2006 and 2007)
FINANCIAL SECTION
The Company has guaranteed the amounts of US$1,841 million and JPY 6,452 million to KE Export Leasing andother financial institutions on behalf of KALF and other parties in connection with capital and operating lease agree-ments as of December 31, 2007.
Minimum lease payments and present value of long-term obligations under installment purchases and capital leases asof December 31, 2007 are as follows:
U. S. dollarsKorean won in millions in thousands
(Note 2)
Long-term obligation Obligation
under under Total Totalinstallment capital leasespurchases 1)
Less than 1 year ₩ 329,051 ₩ 539,818 ₩ 868,869 US$ 926,102More than 1 year to 5 years 271,570 1,805,566 2,077,136 2,213,959More than 5 years - 769,421 769,421 820,103
₩ 600,621 ₩ 3,114,805 ₩ 3,715,426 US$ 3,960,164Present value ₩ 542,742 ₩ 2,613,498 ₩ 3,156,239 US$ 3,364,143
1) Accumulated losses on valuation of long-term liabilities related to the interest rate swap contracts amounting to ₩11,307 mil-lion were excluded.
Guaranteed loansThe Company has agreed to assume certain guaranteed liabilities of Hanjin Shipping Co., Ltd. with KEB and otherfinancial institutions (“Guaranteed loans”), pursuant to the Government Guidelines for the Rationalization of theMarine 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. Inaccordance with the repayment schedule, the Company made its first installment payment in 2003 and final install-ment will be due in 2017. The outstanding balance of guaranteed loans as of December 31, 2006 and 2007 are as fol-lows:
U. S. dollarsKorean won in millions in thousands
(Note 2)
2006 2007 2007Guaranteed loans from:
KDB ₩ 28,779 ₩ 26,162 US$ 27,885Woori Bank 18,850 17,137 18,266Korea Asset Management Corp. 1,213 1,103 1,175Hanshin Federation of savings Bank 1,452 1,320 1,407Kookmin Bank 1,083 985 1,050Shinhan Bank 4,841 4,401 4,690Daegu Bank 3,559 3,236 3,449KEB 46,862 42,601 45,408Heungkuk Life Insurance Co., Ltd. 9,648 8,771 9,349Daehan Fire & Marine
Insurance Co., Ltd. 998 907 967₩ 117,285 ₩ 106,623 US$ 113,646
Less present value discounts (46,518) (39,661) (42,273)70,767 66,962 71,373
Less current portion,net of present value discounts ₩ (9,931) ₩ (9,930) US$ (10,584)
₩ 60,836 ₩ 57,032 US$ 60,789
092 · 093KOREAN AIR ANNUAL REPORT 2007
Asset-backed securitization loansThe 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 receiv-ables of the Company to several financial institutions. Details of the ABS loans as of December 31, 2006 and 2007 areas follows:
U. S. dollarsKorean won in thousandsin millions (Note 2)
2006 2007 2007KAL-Japan 2nd ABS 0.72% ₩ 65,563 ₩ 14,027 US$ 14,951KAL-Japan 3rd ABS 1.2% - 241,948 257,886
65,563 255,975 272,837Less current portion (52,403) (124,906) (133,134)
₩ 13,160 ₩ 131,069 US$ 139,703
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-termForeign obligations
Korean won currency under Obligations Asset-backeddenominated denominated installment under capital Guaranteed securitization
Year ended Bonds loans loans purchases1) leases loans loans Total
Dec 31, 2008 ₩687,640 ₩ 80,234 ₩170,469 ₩329,051 ₩406,418 ₩ 10,662 ₩124,906 ₩1,809,380
Dec 31, 2009 420,000 87,345 437,734 153,076 412,741 10,662 112,237 1,633,795
Dec 31, 2010 790,000 320,923 132,195 118,495 435,635 10,662 18,832 1,826,742
Dec 31, 2011 400,000 28,535 108,466 - 352,622 10,662 - 900,285
Dec 31, 2012 290,000 27,279 108,467 - 298,182 10,662 - 734,590
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 ₩8,106,9121) Accumulated losses on valuation of long-term liabilities related to the interest rate swap contracts amounting to ₩11,037 million
were excluded.
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.
13. Commitments and
contingencies
Annual interest ratein 2007
NOTES TO FINANCIAL STATEMENTS (CONTINUED)(December 31, 2006 and 2007)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)(December 31, 2006 and 2007)
FINANCIAL SECTION
Pending litigations
As of December 31, 2007, various claims, lawsuits and complaints, arising from airline services operations are pend-
ing 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 perfor-
mance and position of the Company.
For an alleged anti-trust violation relating to the Company and other parties colluding on price fixing of aircargo ser-
vices, 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 claim-
ing damages at the United States District Court for the Eastern District of New York which are still pending. In addi-
tion, 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 bal-
ance 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 : US$378,403 thousand
Terms : Pay floating interest rate of Libor + 0.75 ~ 0.85 % and
receive fixed interest rate of 7.29 ~ 9.12%
Swap contract period : February 28, 1991 to January 15, 2010
Interest expense from the long-term obligations amounting to ₩7,941 million for the year ended December 31, 2007
has been offset against the gain on settlement of interest rate swap contracts. Loss on valuation of interest rate swap
contracts and gain on valuation of long-term obligations under installment purchases, each amounting to ₩725 mil-
lion, were recognized as non-operating expense and non-operating income, respectively, for the year ended December
31, 2007.
Foreign currency option contracts
In order to hedge the exposure of changes in exchange rates related to foreign currency liabilities, the
Company has entered into foreign currency zero-cost collar option contracts, which consist of call-options in
long positions and put-options in short positions, with Development Bank of Singapore (“DBS”) and other
financial institutions. The terms of outstanding foreign currency zero-cost collar option contracts as of
December 31, 2007 are as follows (United States dollars in thousands):
094 · 095KOREAN AIR ANNUAL REPORT 2007
NOTES TO FINANCIAL STATEMENTS (CONTINUED)(December 31, 2006 and 2007)
Notional Unsettled ContractCounterparty amount amount currency Contract date Settlement date
DBS US$ 120,000 US$ 120,000 KRW Nov 6, 2006 Jan, 2008 ~ Dec, 2008KDB 60,000 60,000 KRW Nov 20, 2006 Jan, 2008 ~ Dec, 2008
60,000 60,000 KRW Nov 20, 2006 Jan, 2009 ~ Dec, 200995,000 60,000 KRW May 10, 2007 June, 2007 ~ Dec, 200870,000 60,000 KRW Oct 5, 2007 Nov, 2007 ~ Dec, 2008
KEB 70,000 60,000 KRW Oct 12, 2007 Nov, 2007 ~ Dec, 2008 JP Morgan 120,000 120,000 KRW Nov 6, 2006 Jan, 2009 ~ Dec, 2009
US$ 595,000 US$ 540,000
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 rec-
ognized arising from the foreign currency option contracts amounted to ₩2,534 million (US$2,701 thou-
sand) 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):
Contracted UnsettledCounterparty
quantities quantitiesContract date Settlement date
Merrill Lynch 600 200 Aug 23, 2007 Sep, 2007 ~ Feb, 2008
Lehman Brothers 300 200 Nov 27, 2007 Dec, 2007 ~ Feb, 2008
KDB 300 300 Aug 23, 2007 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 compre-
hensive 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:
NOTES TO FINANCIAL STATEMENTS (CONTINUED)(December 31, 2006 and 2007)
FINANCIAL SECTION
Korean wonU. S. dollars in thousandsin millions
Accumulatedother
Gain on Loss on comprehensive CurrentPeriod ended Jan. 1 Settled
valuation valuation income portionDec. 31 Dec. 31
Current assets:
Interest rate swapUS$ 8,416 US$(6,745) US$ 42 US$ - US$ - US$ 5,940 US$ 7,653 ₩ 7,172
Foreign currency
option 63 (63) 1,858 - - - 1,858 1,743
Oil-price option 85 (85) - - 1,998 - 1,998 1,822
US$ 8,564 US$(6,893) US$ 1,900 US$ - US$ 1,998 US$ 5,940 US$ 11,509 ₩ 10,737
Current liabilities:
Foreign currency
option US$ 1,244 US$ (363) US$ (881) US$ - US$ - US$ - US$ - ₩ -
Oil-price option 2,807 (2,807) - - - - 1,134 1,065
US$ 4,051 US$(3,170) US$ (881) US$ - US$ - US$ - US$ 1,134 ₩ 1,065
Fixed assets:
Interest rate swapUS$ 9,325 US$ - US$ 727 US$ - US$ - US$(5,940) US$ 4,112 ₩ 3,864
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:
Korean won equivalentU. S. dollars in thousands
in millions
2008.1.1 ~ 2008.12.31 US$ 176,471 ₩ 165,565
2009.1.1 ~ 2009.12.31 119,580 112,190
2010.1.1 ~ 2010.12.31 102,079 95,770
2011.1.1 ~ 2011.12.31 83,888 78,704
2012.1.1 ~ 2012.12.31 48,419 45,427
2013.1.1 and after 126,253 118,450
US$ 656,690 ₩ 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.
096 · 097KOREAN AIR ANNUAL REPORT 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$41.45 mil-
lion into GCIAC with the eventual equity ownership of 47%.
At the board of directors’ meeting on November, 2007, it was resolved that the Company will invest ₩20,000
million for the incorporation of a low cost carrier.
A substantial portion of the property, aircraft and equipment as of December 31, 2007, has been pledged as
collateral for certain borrowings from banks and other financial institutions, are as follows:
Korean won in millions, US$ and NLG in thousands
Amount Collateral
KDB US$ 1,873,085 Land, building, aircraft
and engines
NLG 1,143 Land and building
₩ 1,080,900 Land, building and facility
KEB US$ 25,956 Aircraft and engines
KRW 8,000 Land and building
Kookmin Bank ₩ 60,544 Land, building and
facility usage rights
EIBK US$ 354,559 Aircraft and engines
NACF ₩ 447,051 Aircraft and engines
Hana Bank US$ 96,850 Aircraft and engines
₩ 45,500 Aircraft and engines
Wilmington Trust US$ 71,069 Aircraft and engines
14. Pledged assets
NOTES TO FINANCIAL STATEMENTS (CONTINUED)(December 31, 2006 and 2007)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)(December 31, 2006 and 2007)
FINANCIAL SECTION
As of December 31, 2007, the following investment securities and equity method investments are pledged as collat-
eral (Korean won in millions):
Number of Bookshares value
Financial institution Purpose
Held-to maturity securities:
National housing bond - ₩ 450 Defense Procurement Contract guarantee
Agency
National housing bond - 941 Incheon Airport Import customs
Customs clearance guarantee
Equity method investments:
Hanjin Shipping Co., Ltd. 313,950 9,805 KEB Guaranteed loans
Hanjin Energy Co., Ltd. 34,000 899,433 Hana Bank Borrowing guarantee
₩ 910,629
Changes in severance and retirement benefits for the years ended December 31, 2006 and 2007 are summarized as
follows:
U. S. dollars in thousandsKorean won in millions(Note 2)
2006 2007 2007
Beginning balance ₩ 774,535 ₩ 791,197 US$ 843,314
Provisions 150,162 128,649 137,124
Transfer to affiliates (453) 2,467 2,628
Payments (133,047) (144,976) (154,526)
791,197 777,337 828,540
Deposits for severance and retirements
benefits (112,492) (298,165) (317,805)
Accumulated prepayment to KNPC (17,235) (14,063) (14,989)
Net balance ₩ 661,470 ₩ 465,109 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:
U. S. dollars in thousandsKorean won in millions(Note 2)
2006 2007 2007
Paid-in capital in excess of par value ₩ 191,095 ₩ 190,823 US$ 203,393
Asset revaluation surplus 2,815,926 2,815,926 3,001,413
₩ 3,007,021 ₩ 3,006,749 US$ 3,204,806
15. Severance and
retirement benefits
16. Stockholders’ equity
098 · 099KOREAN AIR ANNUAL REPORT 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:
U. S. dollars in thousandsKorean won in millions(Note 2)
2006 2007 2007
Appropriated retained earnings:
Legal reserve ₩ 4,500 ₩ 5,500 US$ 5,862
Reserve for financial position improvement 69,700 69,700 74,292
Reserve for facility usage 500,000 620,000 660,840
Reserve for foreign currency fluctuation - 100,000 106,587
Reserve for research and manpower
development - 130,000 138,563
574,200 925,200 986,144
Unappropriated retained earnings 479,592 129,030 137,529
₩ 1,053,792 ₩ 1,054,230 US$ 1,123,673
Legal reserveIn accordance with the Korean Commercial Code, an amount equal to at least 10% of cash dividends is required tobe appropriated as a legal reserve until the reserve equals 50% of paid-in capital. The legal reserve may not be uti-lized for cash dividend, but may used to offset a future deficit, if any, or may be transferred to capital stock.
Reserve for financial position improvementThe Korean Financial Control Regulation for listed companies had required that an amount equal to at least 10% ofnet income, plus a 50% of net gain, if any, on extraordinary disposal of property, plant and equipment (after relatedincome taxes), be appropriated as reserve for improvement of financial position until the ratio of stockholders’ equi-ty to total assets equals 30%. Effective from December 2007, such reserve is no longer required by the revised TILL.
Reserve for facility usageThe reserve for facility usage is voluntary in nature and is not restricted; this reserve may be used for dividends or tooffset a deficit, if any.
Reserve for foreign currency fluctuationThe reserve is voluntary reserve , which has no restrictions.
Research and man power development reservePursuant to the Korean Tax Incentives Limitation Law, the reserve for research and human development reserve areprovided in order to obtain tax benefits with respect to the year for which the appropriations are proposed. Thesereserves may be utilized for cash dividends after the expiration of specified grace period.
Treasury stockAs of December 31, 2007, the Company has 4,437,327 shares of common stock and 11,869 shares of preferred stockheld as treasury stock with carrying value of ₩65,264 million and ₩135 million, respectively.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)(December 31, 2006 and 2007)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)(December 31, 2006 and 2007)
FINANCIAL SECTION
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 cor-
porate income tax reporting purposes for the years ended December 31, 2006 and 2007 are summarized as
follows:
Korean won in millions
2006 2007Temporary Non-temporary Temporary Non-temporarydifference difference difference 1) difference
Additions:Entertainment expenses
in excess of tax limit ₩ - ₩ 11,912 ₩ - ₩ 12,274Accrued severance and
retirement benefits 2,722 - - -Depreciation 49,582 - 47,991 -Present value discount on
guaranteed loans 7,206 - 6,858 -Provision for temporary
depreciation 15 - 20 -Unredeemed mileage liabilities 23,596 - 23,783 -Gain on valuation of long
term investment securities 4,349 - - 10,486Reserve for research
and human development - - 6,000 -Other 488,289 8,851 - 296,734
₩ 575,759 ₩ 20,763 ₩ 84,652 ₩ 319,494Deductions:Accrued severance and
retirement benefits -Foreign currency translation
adjustment debit 47,656 - 21,310 -Guaranteed loan 8,093 - 6,072 -Discount on aircraft purchased 12,953 - 11,152 -Equity method investments 59,019 - 73,881 -Gain on valuation of long
term investment securities - 4,349 6,257 -Reserve for research
and human development 130,000 - - -Gain on valuation of
other non-current assets - - 4,823 -Other - 2,829 80,907 -
₩ 257,721 ₩ 7,178 ₩ 204,402 ₩ -
17. Income taxes
100 · 101KOREAN AIR ANNUAL REPORT 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 2007Beginning Ending
balanceIncrease Decrease
balance
Deductible temporary differences:
Severance and retirement
benefits ₩ 376,485 ₩ - ₩ 135,924 ₩ 240,561
Depreciation 116,318 47,991 - 164,309
Foreign currency translation
adjustment 70,811 - 28,492 42,319
Guaranteed loan 8,096 - 8,096 -
Discount in aircraft purchased 227,266 - 13,663 213,603
Unredeemed mileage liabilities 168,876 23,783 - 192,659
Gain from assets contributed 54,322 - - 54,322
Other 140,478 (76,889) - 63,589
1,162,652 (5,115) 186,175 971,362
Taxable temporary differences:
Provision for temporary
depreciation ₩ (59) ₩ - ₩ (20) ₩ (38)
Discount on guaranteed loan (46,518) - (6,857) (39,661)
Reserve for research and
human development (130,000) - (6,000) (124,000)
Gain on valuation of long- term
investment securities (32,502) (10,486) - (42,988)
Equity method investments (23,170) (99,565) - (122,736)
Gain on valuation of other assets - (7,305) - (7,305)
(232,249) (117,356) (12,878) (336,728)
Total 930,403 634,634
Temporary difference
unrecognized1) (303,291) (173,460)
Temporary difference recognized 627,112 461,174
Tax rate 27.5% 27.5%
Deferred income tax asset, net ₩ 172,455 ₩ 126,8231) The Company did not recognize deferred income tax assets for deductible temporary differences, arising from equity method invest-
ments amounting to ₩221,129 million and gain from assets contributed amounting to ₩54,322 million, in consideration of theuncertainty in realizing those deductible temporary differences in the future. In addition, the Company did not recognize deferredincome tax liabilities for additional temporary differences arising from the revaluation of land amounting to ₩101,991 million, in con-sideration that the Company has no firm commitment to dispose of the land in the foreseeable future.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)(December 31, 2006 and 2007)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)(December 31, 2006 and 2007)
FINANCIAL SECTION
Details of gross deferred income tax assets and liabilities as of December 31, 2007 are as follows:
Korean won in millions
TemporaryDeferred income tax assets
(liabilities)differences Current Non-current
Temporary difference:
Accrued severance and retirement benefits ₩ 240,561 ₩ - ₩ 66,154
Depreciation 164,309 - 45,185
Foreign currency translation adjustment debit 42,319 - 11,638
Discount on aircraft purchased 213,603 - 58,741
Unredeemed mileage liabilities 192,659 - 52,981
Provision for temporary depreciation (38) - (11)
Present value discount on guaranteed loan (39,661) - (10,907)
Reserve for research and human development (124,000) - (34,100)
Gain on valuation of long-term investment
securities (42,988) - (11,822)
Equity method investments (343,865) - (94,563)
Gain on valuation of derivatives (1,822) - (501)
Gain on valuation of other non-current asset (5,483) - (1,508)
Others 165,579 1,031 44,504
Deferred income tax assets 1,348 279,203
Deferred income tax liabilities (317) (153,411)
Deferred income tax assets, net ₩ 1,031 ₩ 125,792
The major components of provision for income taxes for the years ended December 31, 2006 and 2007 are as fol-
lows:
U. S. dollars in thousandsKorean won in millions(Note 2)
2006 2007 2007Current income taxes ₩ 45,251 ₩ 42,949 US$ 45,779Changes in deferred income tax
arising from temporary differences 58,411 45,633 48,639Deferred income tax which is
credited (charged) directly to equity 1,196 (7,036) (7,500)Provision for income taxes ₩ 104,858 ₩ 81,546 US$ 86,918
102 · 103KOREAN AIR ANNUAL REPORT 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 thousandsKorean won in millions(Note 2)
2006 2007 2007Gain on valuation of long-term
investment securities ₩ (4,349) ₩ 10,486 US$ 11,176Equity adjustment arising from
equity method investments - 7,795 8,309Gain on valuation of
derivative instruments - 1,822 1,942Gain on valuation of
other non-current assets - 5,483 5,844Total (4,349) 25,586 27,271Income tax rate 27.5% 27.5% 27.5%Charged (credited) directly
to equity ₩ 1,196 ₩ (7,036) US$ (7,500)
The effective income tax rates for the years ended December 31, 2005 and 2006 are as follows:
U. S. dollars in thousandsKorean won in millions(Note 2)
2006 2007 2007Income before income taxes ₩ 487,870 ₩ 92,286 US$ 98,365Provision for income taxes 104,858 81,547 86,918Effective income tax rate 21.49% 88.36% 88.36%
The Company’s comprehensive income for the years ended December 31, 2006 and 2007 are computed as follows:
U. S. dollars in thousandsKorean won in millions(Note 2)
2006 2007 2007Net income ₩ 383,012 ₩ 10,740 US$ 11,448Other comprehensive income:
Gain (loss) on valuation oflong-term investment securities (3,153) 7,602 8,103
Gain (loss) on valuation ofderivative instruments (2,534) 3,855 4,109
Equity adjustment arising fromequity method investments (6,843) 14,294 15,235
Gain on valuation ofother non-current assets - 3,976 4,237
₩ (12,530) ₩ 29,726 US$ 31,684
Comprehensive income ₩ 370,482 ₩ 40,467 US$ 43,132
NOTES TO FINANCIAL STATEMENTS (CONTINUED)(December 31, 2006 and 2007)
18. Comprehensive
income
NOTES TO FINANCIAL STATEMENTS (CONTINUED)(December 31, 2006 and 2007)
FINANCIAL SECTION
The Company’s per share amounts for the years ended December 31, 2006 and 2007 are computed as follows:
U. S. dollars in thousandsKorean won in millions(Note 2)
2006 2007 2007
Net income ₩ 383,012 ₩ 10,740 US$ 11,448
Preferred stock dividends (273) (752) (802)
Net income attributable to
common stock 382,738 9,987 10,646
Weighted-average number of shares of
common stock outstanding (in units) 66,852,109 67,534,304 67,534,304
Earnings per share
(Korean won and US$ in units) 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.
The 2006 dividends were approved at the ordinary stockholders’ meeting held on March 16, 2007 and the 2007 divi-
dends 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:
2006Common stock Preferred stock
Cash Stock Cash Stockdividends dividends dividends dividends
Number of shares (A) 66,852,109 66,852,109 1,397,308 1,367,308
Dividend per share (rate) (B)
(Korean won in units) ₩ 100 (2%) ₩ 50 (1%) ₩ 150 (3%) ₩ 50 (1%)
Dividends (A×B)
(Korean won in millions) ₩ 6,685 ₩ 3,343 ₩ 205 ₩ 68
2007Common stock Preferred stock
Cash Stock Cash Stockdividends dividends dividends dividends
Number of shares (A) 67,534,304 67,534,304 1,397,308 1,367,308
Dividend per share (rate) (B)
(Korean won in units) ₩ 500 (10%) ₩ (-%) ₩ 550 (11%) ₩ (-%)
Dividends (A×B)
(Korean won in millions) ₩ 33,767 ₩ - ₩ 752 ₩ -
20. Dividends
19. Per share amounts
104 · 105KOREAN AIR ANNUAL REPORT 2007
The dividend payout ratio for the years ended December 31, 2006 and 2007 are as follows:
U. S. dollars in thousandsKorean won in millions(Note 2)
2006 2007 2007
Dividends (A) ₩ 10,302 ₩ 34,519 US$ 36,793
Net income (B) ₩ 383,012 ₩ 10,740 US$ 11,448
Dividend payout ratio (A/B) 2.7% 321.4% 321.4%
The dividend yield ratio for the years ended December 31, 2006 and 2007 are as follows:
2006 2007Common Preferred Common Preferred
stock stock stock stock
Dividend per share (A)
(Korean won in units) ₩ 150 ₩ 200 ₩ 500 ₩ 550
Market value per share at
balance sheet date (B)
(Korean won in units) ₩ 35,450 ₩ 18,650 ₩ 76,800 ₩ 29,000
Dividend yield ratio (A×B) 0.4% 1.1% 0.7% 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:
NOTES TO FINANCIAL STATEMENTS (CONTINUED)(December 31, 2006 and 2007)
21. Related party
disclosures
NOTES TO FINANCIAL STATEMENTS (CONTINUED)(December 31, 2006 and 2007)
FINANCIAL SECTION
Korean won in millions
2006 2007Revenue/ Revenue/
other income Expense other income ExpenseHanjin Transportation
Co., Ltd. ₩ 1,672 ₩ 8,643 ₩ 1,494 ₩ 9,957Korean Airport Service
Co., Ltd. 209 224,400 300 239,257Hanjin Travel Service
Co., Ltd. 31 11,787 64 16,382Jungseok Enterprise
Co., Ltd - 817 - 883Hanjin Information Systems
& Telecommunication Co., Ltd. 281 27,954 228 29,127Air Total Service Co., Ltd 2 25,783 8 25,966In-cheon International Airport - 13,458
Oiling Facility - 12,426Topas Co., Ltd. 18,705 20,672 20,219 23,499KALF 7,638 253,559 7,729 236,820S-oil corporation - - 6 244,052Others 316 55,197 623 21,411Total ₩ 28,854 ₩ 641,238 ₩ 30,671 ₩ 860,812
The expense amount related to KALF incurred on capital leases consists of interest expense amounting to ₩109,184million and operating lease payments amounting to ₩127,617 million, and revenues from KALF consist of interestincome 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 asfollows:
Korean won in millions
2006 2007Receivable Payable Receivable Payable
Hanjin TransportationCo., Ltd. ₩ 126 ₩ 2,998 ₩ 20 ₩ 2,677
Korean Airport ServiceCo., Ltd. 365 41,328 375 44,501
Hanjin Travel ServiceCo., Ltd. 46 2,383 68 2,470
Jungseok EnterpriseCo., Ltd 384 1 413 -
Hanjin Information Systems& Telecommunication Co., Ltd. 1 6,658 56 7,877
Air Total Service Co., Ltd. - 4,473 - 2,583Topas Co., Ltd. 1,720 1,898 - 2,611KALF 180,461 2,128,006 162,854 1,814,910S-oil Corporation - - 1 16,180Others 27 2,507 56 3,229Total ₩ 183,130 ₩2,190,252 ₩ 163,843 ₩ 1,897,038
106 · 107KOREAN AIR ANNUAL REPORT 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
Guaranteedamounts
Financial institutions
Korea Airport Service Co., Ltd. ₩ 27,694 KEB
₩ 17,008 KDB
₩ 20,061 Woori Bank and others
Hanjin Transportation Co., Ltd. ₩ 20,768 KEB
₩ 12,756 KDB
₩ 16,914 Woori Bank and others
US$ 2,689 Fortune Star Maritime S.A
Hanjin Shipping Co., Ltd. US$ 666,522 KSH INTL S.A. and others
Others ₩ 36,755 KEB and others
US$ 50,000 HANA NYC
Total ₩ 151,956
US$ 719,211
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:
NOTES TO FINANCIAL STATEMENTS (CONTINUED)(December 31, 2006 and 2007)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)(December 31, 2006 and 2007)
FINANCIAL SECTION
Korean won in millions
Guaranteedamounts
Financial institutions
Hanjin Transportation Co., Ltd. ₩ 55,382 KEB
₩ 34,010 KDB
₩ 44,877 Woori Bank and others
Korea Airport Service Co., Ltd. ₩ 55,382 KEB
₩ 34,010 KDB
₩ 44,877 Woori Bank and others
Hanjin Shipping Co., Ltd. ₩ 55,382 KEB
₩ 34,010 KDB
₩ 45,784 Woori Bank and others
Jungseok Enterprise Co., Ltd. ₩ 55,382 KEB
₩ 34,010 KDB
₩ 44,877 Woori Bank and others
Total ₩ 537,983
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.
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 2007Selling and
TotalOperating
administrative Totalexpenses
expenses
Salaries and wages ₩ 917,712 ₩ 804,654 ₩ 191,900 ₩ 996,554
Severance and retirement
benefits 150,162 106,463 22,186 128,649
Employee fringe benefits 198,335 168,315 51,056 219,371
Taxes and dues 38,038 14,766 16,650 31,416
Rent 404,605 366,553 14,760 381,313
Depreciation 696,875 696,726 32,533 729,259
₩ 2,405,727 ₩ 2,157,477 ₩ 329,085 ₩ 2,486,562
USD in thousands US$2,564,195 US$2,299,592 US$ 350,762 US$2,650,354
22. Value added
information
108 · 109KOREAN AIR ANNUAL REPORT 2007
The Company’s operating results (unaudited) for the three months ended December 31, 2006 and 2007 are sum-
marized as follows:
U. S. dollars in thousandsKorean won in millions(Note 2)
2006 2007 2007
Sales ₩ 2,114,579 ₩ 2,301,964 US$ 2,453,596
Gross profit 1,642,710 1,817,890 1,937,636
Operating income 143,412 128,643 137,117
Net income 114,006 (35,272) (37,595)
Earnings per share
(Korean won and U. S. dollars in units) 1,704 (525) (1)
The Company defines its business segments by the nature of services and products as follows:
Products or services Major customers
Airline Transporting passengers and cargoes Individual customers
Aerospace Maintaining aircraft and Boeing Commercial, defense
manufacturing aircraft parts procurement agency, and others
In-flight meals Catering for in-flight meals Singapore Airlines Ltd.
and other foreign airlines
Hotel and limousine Land transport, accommodations Individual customers
and others
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 Hotel &Airline Aerospacemeals limousine
Total
Sales:
External sales ₩ 8,483,271 ₩ 235,082 ₩ 58,399 ₩ 35,237 ₩ 8,811,989
Inter-segment sales (7,099) (18,345) (98,730) (6,700) (130,874)
December 31, 2007 8,490,370 253,427 157,129 41,937 8,942,863
External sales 7,778,491 211,578 51,297 36,504 8,077,871
Inter-segment sales ₩ (6,112) ₩ (11,772) ₩ (89,168) ₩ (5,745) ₩ (112,796)
December 31, 2006 ₩ 7,784,603 ₩ 223,350 ₩ 140,465 ₩ 42,249 ₩ 8,190,667
Operating income (loss):
December 31, 2007 ₩ 622,223 ₩ 7,810 ₩ 13,844 ₩ (7,040) ₩ 636,837
December 31, 2006 ₩ 487,057 ₩ 8,599 ₩ 11,351 ₩ (9,652) ₩ 497,355
NOTES TO FINANCIAL STATEMENTS (CONTINUED)(December 31, 2006 and 2007)
23. Operating result
for the 4th quarter
(unaudited)
24. Segment information
NOTES TO FINANCIAL STATEMENTS (CONTINUED)(December 31, 2006 and 2007)
FINANCIAL SECTION
25. Supplementary
cash flow information
Korean won in millions
In-flight Hotel &Airline Aerospacemeals limousine
Total
Property, aircraft and equipment, andintangible assets:December 31, 2007 ₩10,506,820 ₩ 393,531 ₩ 58,892 ₩ 142,556 ₩11,101,799December 31, 2006 ₩10,355,208 ₩ 382,762 ₩ 63,803 ₩ 144,808 ₩10,946,581
Depreciation and amortization:December 31, 2007 ₩ 724,201 ₩ 12,749 ₩ 6,257 ₩ 3,171 ₩ 746,378December 31, 2006 ₩ 687,900 ₩ 11,994 ₩ 6,573 ₩ 3,695 ₩ 710,162
Geographical segments
Korean won in millions
Domestic Asia America Europe Oceania TotalAirline ₩1,269,581 ₩2,570,549 ₩2,634,458 ₩1,612,150 ₩ 396,533 ₩8,483,271Aerospace 58,323 3,195 109,707 63,857 - 235,082In-flight meals 58,399 - - - - 58,399Hotel and
limousine 35,237 - - - - 35,237December 31,
2007 ₩1,421,540 ₩2,573,744 ₩2,744,165 ₩1,676,007 ₩ 396,533 ₩8,811,989December 31,
2006 ₩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 fol-lows:
U. S. dollars in thousandsKorean won in millions
(Note 2)
2006 2007 2007Transfer of available-for-sale securities
to equity method investments ₩ 11,000 ₩ - US$ -Reclassification of current portion
of long-term liabilities 1,129,572 1,316,219 1,402,920Transfer of construction-in-progress
to property, aircraft and equipment 700,873 849,668 905,636Reclassification of current portion of obligations
under capital leases 368,837 369,850 394,212Offset construction-in-progress
against advances received - 210,710 224,590Transfer of construction-in-progress
to other accounts receivable ₩ - ₩ 65,506 US$ 69,821Transfer of construction-in-progress
to intangible assets - 32,510 34,652Transfer of aircraft rotable parts to aircrafts - 10,802 11,514
110 · 111KOREAN AIR ANNUAL REPORT 2007
INTERNAL ACCOUNTING CONTROL SYSTEM REVIEW REPORT
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.
ERNST & YOUNG HAN YOUNG Phone : 3787-6600Taeyoung Bldg., 3F~8F Fax : 783-589010-2, Yeoido-dong, Youngdeungpo-guSeoul 150-777 Korea
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 neces-
sary.
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 compli-
ance 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 stan-
dards.
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
REPORT ON THE OPERATIONS OF THE INTERNAL ACCOUNTING CONTROL SYSTEM
FINANCIAL SECTION
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 mis-
statement 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 opera-
tions 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
Internal Accounting Control Officer
Chief Executive Officer or President
Lee, Sang Kyoon
Lee, Jong Hee
ORGANIZATION MAP
112 · 113KOREAN AIR ANNUAL REPORT 2007
Chairman & CEO
President & COO
Marketing & Planning
Korea Institute of Aerospace Technology
Military Aircraft Plant
Commercial Aerospace Plant
Flight Operations Planning
Flight Operations TechnicalSupport
Flight Standards
Flight Operations QualityAssurance
Flight Crew Training Center
Customer Service
Internal Auditing
International Affairs
Legal Affairs
Facilities & Environment
Corporate Safety, Security & Compliance
Purchasing
Information Technology
Corporate Communications
Corporate Strategy & Planning DIV.
Catering Business DIV.
Hotel & In-Flight SalesBusiness DIV.
Cabin Service DIV.
Cabin Crew OperationsPlanning
Cabin Crew Operations
Cargo Business Planning &Administration
Cargo Network & RevenueManagement
Cargo Strategy &Development
Cargo Logistics & Service
Plant Operations
Gimhae Administration Office
Regional H/QIncheon INT’L Airport
Aerospace Business DIV.
Maintenance Planning
Engineering
Material Supply
Maintenance QualityAssurance
Maintenance TrainingCenter
Gimhae Maintenance Center
Line & Base MaintenanceCenter
Powerplant MaintenanceCenter
Line Operations
Maintenance & Engineering DIV.
Airport Customer Service
Passenger Service Center
Passenger Strategy &Development
Passenger Network &Revenue Management
Passenger Business Planning& Administration
Domestic RevenueManagement & Planning
General Affairs
Human Resources
Human ResourcesDevelopment Center
Employee Relations
Accounting
Finance
Revenue Accounting
Operations Control
Scheduling
Corporate Finance DIV.
Operations Control DIV.
Human Resources DIV.
Passenger Business DIV. Cargo Business DIV. Flight Operations DIV.
EXECUTIVE OFFICERS
Company Headquarters Cho, Yang HoChairman & CEO
Lee, Jong HeePresident & COO
Kang, Dal HoSenior Vice President
Shim, Jae MoonManaging Vice President
Park, Hak JinManaging Vice President
Song, Yong HoonManaging Vice President
Oh, Kyu ChulVice President
Shin, Hyun OhVice President
Lee, Jong SukVice President
Jung, Ji YoungVice President
Lee, Myung HyeVice President
Passenger Business Division
Cho, Hyun AhManaging Vice President
Cho, Byung TaekManaging Vice President
Hwang, Soo YoungVice President
Catering Business Division
Kim, Nam SunManaging Vice President
Hotel & In-flight Sales Business Division
Chang, Kyung HwanExecutive Vice President
Choung, Do KunVice President
Kim, Jae HoVice President
Kim, Jong CheolVice President
Corporate Strategy & Planning Division
Chi, Chang HoonSenior Vice President
Lee, Soon YoungManaging Vice President
Park, Woon HoVice President
Jang, Si WooVice President
Cargo Business Division
Suh, Yong WonExecutive Vice President
Kim, Jong NamManaging Vice President
Lee, You SungManaging Vice President
Lee, Taek YongManaging Vice President
Lee, Kwang SooManaging Vice President
Kim, Tai WonManaging Vice President
Human Resources Division
Kim, Se TaiManaging Vice President
Huntzinger, David LeeManaging Vice President
Han, Sang GilVice President
Legal Affairs
Corporate Safety, Security & Compliance
Jung, Yung HakManaging Vice President
Bang, Sun OhVice President
International Affairs
Lee, Soo KeunManaging Vice President
Cho, Won TaeManaging Vice President
Purchasing
Won, Jong SeungSenior Vice President
Hanjin Group Corporate Management
Choi, Moon KyuManaging Vice President
China Joint Venture Project
Kim, Jae KunManaging Vice President
LCC Establishment Project
Lee, Sang ManManaging Vice President
Kim, Chul WooManaging Vice President
Information Technology
Park, Nam IlManaging Vice President
Suh, Kang YoonVice President
Lee, Hwa SukVice President
Shin, Mu CholVice President
Corporate Communications
Koh, Byung WooVice President
Customer Service
Lee, Sang KyoonSenior Vice President
Hur, Young JinManaging Vice President
Kim, Hyun SeokVice President
Corporate Finance Division
Kim, Heung SikSenior Vice President
Yoo, Yun KilManaging Vice President
Moon, Kap SuckManaging Vice President
Operations Control Division
Lee, Sung BokManaging Vice President
Internal Auditing
114 · 115KOREAN AIR ANNUAL REPORT 2007
Regional Headquarters
Cho, Hang JinExecutive Vice President
Kim, Se HanManaging Vice President
Choi, June ChulManaging Vice President
Kwon, Kyung HwanManaging Vice President
Yoon, ShinManaging Vice President
Lee, Chang HyoVice President
Jang, Kwang SooVice President
Ham, Myung RaeVice President
Do, Hyun JunVice President
Aerospace Business Division
Lee, Young DuckSenior Vice President
Kim, Kyu WhanVice President
Seo, Hwa SokVice President
Ahn, Sang HoonVice President
Nam, Suk WooVice President
Lee, Sang ChulVice President
Kim, Kie SickVice President
Flight Operations Division
Kang, Young SikExecutive Vice President
Kim, Maeng GonManaging Vice President
Jang, Wan SooManaging Vice President
Kim, Joon SukManaging Vice President
Kwon, Young HwanManaging Vice President
Cho, Kyoo BinManaging Vice President
Kwon, Hyuk MinManaging Vice President
Yoo, Jong SeokVice President
Kim, Sung GabVice President
Han, Sang WonVice President
Maintenance & Engineering Division
Lee, Myung KiSenior Vice President
Lee, Kang HoonManaging Vice President
Chung, Jin HongManaging Vice President
Jung, Woo JinManaging Vice President
Cabin Service Division
Lee, Dae YulManaging Vice President
Hwang, Myung SunManaging Vice President
Han, Dae HangManaging Vice President
Lee, Jin KulManaging Vice President
Lee, Seung BumManaging Vice President
Lee, Woo PyungManaging Vice President
Kim, Young WookVice President
Han, Ki DooVice President
Lee, Hyung HoVice President
Kim, Jong DaeVice President
Korea
Lee, Jong EunManaging Vice President
Kang, Chang HoonManaging Vice President
Kim, Yong SoonManaging Vice President
Woo, Ki HongManaging Vice President
Americas
Lee, Nae KyuManaging Vice President
Japan
Park, Yong SoonManaging Vice President
Europe & Middle East
Kim, Suk HwanManaging Vice President
CIS
Kim, Choong NamManaging Vice President
South East Asia
Kang, Kyoo WonManaging Vice President
China
Date of Establishment _June 19, 1962 | Privatized on March 1, 1969
Head Office _1370 Gonghang-dong, Gangseo-gu, Seoul, KoreaTel: 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
For More Information _ Tel: 82-2-2656-7114e-mail: [email protected] [email protected]
Major Shareholders (As of Dec 31, 2007)
Name Number of shares Ownership(%)
Cho, Yang Ho & Family 8,168,832 11.35 Hanjin Co. 7,127,096 9.90 Inha University Foundation 1,953,157 2.71Jungseok Foundation 1,409,485 1.96Korea Research Foundation for 21C 237,552 0.33Treasury Stock 4,437,327 6.17 Subtotal 23,333,449 32.42
National Pension Fund 6,408,689 8.90Mirae Asset Investments 2,774,635 3.86Samsung Investments 1,360,523 1.89Others 38,094,335 52.93Subtotal 48,638,182 67.58 Total 71,971,631 100.00
COMPANY INFORMATION
KOREAService Center 1588-2001Seoul Cargo Sales (02) 751-7213
JAPANService Center 0088-21-2001Tokyo Cargo Sales (03) 5443-3372
SOUTHEAST ASIASingapore 6796-2001Bangkok (02) 132-0650Manila (02) 893-4909
OCEANIASydney (02) 9262-6000Auckland (09) 914-2000Guam (671) 642-3216
CHINAService Center 40065-88888Hong Kong 2366-2001
AMERICAService Center (800) 438-5000Los Angeles Cargo Sales (310) 417-5203New York Cargo Cargo Sales (718) 632-5550
EUROPEService Center 00800-0656-2001Paris Cargo Sales (01) 4816-9945Frankfurt Cargo Sales (69) 695-0361
DIRECTORY OF REGIONAL /DISTRICT OFFICES
Pro
duc
ed b
y D
esig
n ea
syb
ox
EXCELLENCEIN FLIGHT
Operational Excellence
Service Excellence
Innovative Excellence
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.
1370 Gonghang-dong, Gangseo-gu, Seoul, Korea
Tel : +82-2-2656-7114
www.koreanair.com