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HDC could derail Korean Air's deal to take over Asiana
Korea Development Bank Chairman Lee Dong-gull / Korea Times file
By Lee Kyung-min
National Assembly report names Hyundai as a competition-promoting alternative
By Lee Kyung-min
HDC Hyundai Development Company, the former prospective buyer in a deal to acquire Asiana Airlines owned by Kumho Industrial, will become a new sticking point in Korean Air's planned acquisition of the air carrier, a National Assembly research report said Tuesday.
The fresh claim raises issues over whether the Hyundai subsidiary's deal would have helped spur competition and should therefore be considered a viable alternative to the “mega deal” between the country's largest carrier Korean Air and its cash-strapped second-largest peer, a key point of contention for the Fair Trade Commission (FTC), the country's antitrust agency, to factor in during an upcoming review.
The report can become a major headache to Korea Development Bank (KDB) Chairman Lee Dong-gull who reiterated that no risks would lay ahead during the remainder of the state lender-supervised deal. But his remark may become a major source of embarrassment in addition to his repeated failed attempts to carry the 2.5 trillion won ($2.2 billion) deal given the 800 billion won in taxpayers' money spent in the form of the industry stabilization fund.
Also at issue will be whether the FTC will recognize the possibility that the planned merger will solidify the standing of the two already powerful carriers given their combined slots at Incheon International Airport will far exceed 38.5 percent, the figure of claimed allocation maintained by Korean Air and other creditors.
The National Assembly Research Service released a report on the key point of contention on mergers and acquisitions (M&As) of the full-service carrier, saying the FTC has no precedent to refer to before making a decision on the high-stakes deal.
“The FTC in its previous decisions on Jeju Air's acquisition of Eastar Jet factored in a number of failed acquisition deals, as to whether the deal should be approved,” the report said.
“But there are no clear precedents to predict how the ruling would unfold, and it is difficult to declare a definitive stance over whether the antitrust agency would conclude that there is no better alternative to the KDB-led deal.”
The opinion points to FTC discretion through which Asiana can be deemed unsalvageable, thereby qualifying as an exception to a related rule that bans M&As that could result in a monopoly.
Yet the exception dictates that there be no other alternative that does not undermine market competition, a reason the deal can be derailed if the antitrust agency finds the Hyundai subsidiary could mitigate the monopoly concerns.
Also to play a key role in the FTC decision will be an ongoing legal battle Kumho alongside Asiana's creditors between HDC. The two have accused each other for the failure to seal the deal, a claim made after the Hyundai subsidiary's requests for further due diligence were declined. Asiana rejected the request on the review of firm financials following an increase in borrowing brought on by the COVID-19 pandemic and deteriorating balance sheet. Another request was to look into an allegation that the carrier granted undue favor to its subsidiary in the business of providing in-flight meals.
If the acquisition between the top two carriers materializes, Korea will have the world's 10th-largest airline by fleet size.
Meanwhile, the deal is a major initiative of Lee, whose declared top priority was the conclusion of the sale of Asiana. Even before Korean Air came into the picture, repeated frustrations in inking of the previous deal with HDC raised the possibility of attracting the top carrier whose decades-long expertise in the airline business was considered unmatched by other local market players.
Also at play was the state lenders being under enormous pressure not to waste taxpayers' money, given the immense emergency financing provided to the two carriers hit hard by the pandemic including 1.2 trillion won granted to Korean Air.