Creditors set to nullify $2.2 bil. Asiana deal
Asiana Airlines' Airbus A350 / Courtesy of Asiana Airlines
By Kim Bo-eun, Kim Yoo-chul
After failing to reach the initially proposed “conditions” surrounding the specifics of the takeover of Asiana Airlines by Hyundai Development Company (HDC) between the latter and the Korea Development Bank (KDB), the airline's main creditor, the state-run bank is “seriously considering” nullifying the 2.5 trillion won ($2.2 billion) deal, sources familiar with the matter said Sunday.
“The KDB plans to officially announce the termination of the Asiana Airlines acquisition very soon after last-ditch efforts to move forward with the deal appeared to end in failure with HDC consistently asking the bank for a 12-week due diligence,” a senior executive in the local financial industry said.
Regarding any updates, KDB officials said the bank had begun initiating “Plan B” to save the ailing airliner.
On August 26, HDC Chairman Chung Mong-kyu and KDB Chairman Lee Dong-gull met to discuss the takeover. HDC signed a deal to purchase a controlling stake in Asiana for 2.5 trillion won from Kumho Industrial in December, but the eruption of the COVID-19 pandemic earlier this year changed the circumstances for the aviation industry.
HDC accordingly requested a second inspection of Asiana to look into its altered financial condition.
The KDB-led creditors refused this, instead offering a joint investment by them and HDC ― 1.5 trillion won each ― which HDB refused. The bank earlier offered a 1 trillion won cut in the acquisition price to HDC.
“Because airlines are one of the country's backbone industries, creditors have no option but to invest more in the company despite the deal falling through. The amount of financial aid to be provided to Asiana would be around $1.7 billion to $1.8 billion,” said another official.
A committee determining which industry will benefit from a government relief fund needs to discuss if it will step in to help the ailing airline ― a scenario that will also affect Asiana's budget carrier affiliates.
"The committee on the government relief funds for key industries held a meeting Thursday, but no conclusion was reached," a KDB official said last week.
A highly likely scenario is that Asiana will be placed into court receivership with KDB controlling the management of the country's No. 2 carrier as its main creditor.
Meanwhile, Financial Services Commission (FSC) Chairman Eun Sung-soo said earlier that he wasn't ruling out the possibility of nationalizing the airline. If the HDC deal collapses, Asiana Airlines could be eligible to apply for a review by the committee controlling Stabilization Fund for Key Industries in order to get financial aid.
The KDB is also expected to face legal battle with HDC over a down payment of 250 billion won. In the case of Daewoo Shipbuilding & Marine Engineering, acquired by Hyundai Heavy Industries in March, Hanwha Group had sought to acquire the Daewoo unit in 2008 but that deal fell through. Hanwha filed a suit against the shipbuilder to recover its deposit, and partially won the suit.
The collapse of the HDC deal will have more important ramifications such as Asiana would have to restructure its workforce and further streamline its businesses.
Additionally ― amid the spread of COVID-19 ― it would have a disastrous impact on the airline industry, which is already reeling from massive layoffs due to the suspension of core international routes. The country's biggest carrier Korean Air Lines said earlier it was in talks with Hahn & Co, a local private equity fund (PEF), to sell its money-making in-flight catering and duty-free sales businesses.
Jeju Air recently dropped its bid to buy local budget carrier Eastar Jet.
Asiana's balance sheet is worsening as it reported 292 billion won in operating losses for the first quarter of the year, a drastic reversal from a 7 billion won operating profit year-on-year. This comes amid signs that any recovery in demand for international travel in the latter half of 2020 and next year appear very slim.