Kim Hyun-bin began his journalism career at Arirang TV from 2012 to 2017, specializing in defense, foreign affairs and the economy. In 2018, he joined The Korea Times, covering society and business, and is currently responsible for embassy affairs.
Can Korean Air pave way to become a mega airline?
Korean Air 787-9 Dreamliner / Courtesy of Korean Air
By Kim Hyun-bin
By Kim Hyun-bin
Hanjin Group, the owner of the country's leading airline Korean Air, is seeking to acquire Asiana Airlines, according to industry sources and the Korea Development Bank (KDB), the main creditor bank of the debt-ridden Asiana, Friday. If successful, the country's leading airline could become a mega airline ranking within the global top 10.
The move comes after HDC Hyundai Development withdrew from acquiring Asiana ― the planned sale of Korea's second-largest carrier collapsed in September.
HDC Hyundai Development and brokerage Mirae Asset Daewoo had agreed in December 2019 to purchase Asiana Airlines for around 2.5 trillion won ($2.25 billion), but they called for better terms after the airline's debt surged due to the COVID-19 pandemic.
After the plan fell through, the KDB proposed the Asiana deal to Korean Air, and to better reduce the burden on Hanjin Group it is expected to financially support the acquisition.
For the deal to be successful, Hanjin Group's holding company Hanjin KAL would have to increase its capital by issuing new stocks worth up to 1 trillion won, which the KDB will then purchase. The money raised would be used to purchase a 30.77 percent stake in Kumho Asiana.
“This is one of the options we are reviewing, but nothing is definite,” a KDB said in a statement, Friday.
KCGI, the second largest shareholder of Hanjin KAL, strongly opposed the possible acquisition, Friday, claiming the measures will create losses for customers, shareholders and creditors.
“They have not thought through the specific synergy and value of the acquisition and are trying to incorporate Asiana Airlines that is suffering from the worst financial troubles with Korean Air, which could lead to aviation safety issues and create losses for customers, shareholders and creditors,” KCGI said in a statement. “There needs to be a thorough review and transparent negotiations on the acquisition procedure.”
Currently, Korean Air operates 173 aircraft and Asiana, 86, so the combination of the fleets would make Korean Air a global top 10 airliner in terms of capacity.
However, the plan faces major challenges as the acquisition could raise monopoly concerns.
As of end of last year, Korean Air on its own had a 22.9 percent share of the domestic market compared to Asiana's 19.3 percent; but when adding the former's affiliate Jin Air, and Asiana Airlines affiliates Air Busan and Air Seoul, they take up 62.5 percent of the domestic market.
In addition, the move will meet strong opposition from Hanjin Group Chairman Cho Won-tae's older sister Hyun-ah and her allies, including KCGI and Bando Engineering, which hold 46.71 percent of the company's shares compared to his and Hanjin Kal's 41 percent.
The acquisition if it goes ahead will strengthen Cho's grip over Korean Air as the KDB ― a strong ally of the chairman ― will become the third-largest stakeholder in the airline.
But the acquisition could be easier said than done as Asiana Airlines has a debt ratio exceeding 2,000 percent. Also Hanjin Group has been hit hard by the pandemic, which will make it difficult for the group to acquire the funds needed to acquire Asiana.
“Korean Air has been hit hard by the pandemic and it could be difficult to acquire the funds without selling off assets. They are struggling to the point where most of the employees are on monthly leave rotation and receive only 70 percent of their monthly base pay,” an industry official familiar with the matter said.
Korean Air declined to comment on the matter.