KDB's support for Hanjin boss to reignite family feud

Korea Development Bank Chairman Lee Dong-gull, right, speaks during a National Assembly session in this file photo. From left are former Korean Air vice president and heiress Cho Hyun-ah and Hanjin Group Chairman Cho Won-tae. Yonhap

By Lee Min-hyung

With the Korea Development Bank (KDB) pushing for Korean Air to acquire Asiana Airlines, the high-stakes deal will “definitely reignite” a years-long family feud among family members of the Hanjin Group, the airline's parent company.

On Monday, the KDB will discuss details over the ambitious plan to have Korean Air acquire the ailing Asiana during a ministerial meeting. The state-run lender is the main creditor of Asiana, and is in charge of its sale.

After Hyundai Development Company (HDC) abandoned its earlier plan to acquire the country's second-largest carrier, the KDB was pushing Korean Air both directly and indirectly to take over the struggling airline.

KDB Chairman Lee Dong-gull is standing at the forefront of the mega deal between the nation's two largest carriers after his term was extended in September, amid Cheong Wa Dae's hopes to revive the country's backbone industries including automobiles-, aviation-, shipbuilding and heavy-industry, all of them hit heavily by the COVID-19 pandemic.

President Moon and his Cheong Wa Dae economic team's decision to assign the KDB chief to continue in his position was interpreted as a move to carry out restructuring of the aviation industry after the coronavirus pandemic drove a number of carriers ― including Asiana ― to the brink of collapse.

“Cheong Wa Dae wanted Lee to finalize the ongoing restructuring of major companies ― such as Doosan Group and Asiana ― and so gave him another term,” an official from the presidential office said.

To finalize Korean Air's possible acquisition of Asiana, Lee will move forward by pressing Hanjin Group Chairman Cho Won-tae to prepare fine-tuned details. The exact timeline has not been fixed, but industry officials believe the deal will not be finalized in the near future.

Reigniting feud

After former Hanjin Group Chairman Cho Yang-ho passed away in April 2019, a family feud over the group's management intensified between Chairman Cho Won-tae and former Korean Air Vice President and heiress Cho Hyun-ah.

The first daughter of the late chairman is partnering with the Korea Corporate Governance Improvement (KCGI) private equity fund to fight against the incumbent chairman over the managerial rights of Hanjin KAL, the holding company of Hanjin Group.

A three-way alliance among Cho Hyun-ah, KCGI and Bando Group holds a 46.71 percent stake in Hanjin KAL, while Chairman Cho has a 41.4 percent stake.

If Hanjin KAL pushes for a capital increase by issuing new stocks and getting the KDB to become its third-largest shareholder, this will allow Cho Won-tae to defend his leadership and managerial rights within the company.

The government also hopes to reduce possible risk stemming from an internal family feud by making the KDB participate in management of the group. Korean Air and Cho Hyun-ah made global headlines in 2014 over her engagement in the so-called “nut rage” incident. At that time, she was dissatisfied with a flight attendant's way of serving nuts. Angry with the in-flight service, she forced the Korean Air flight to return to the gate at John F. Kennedy International Airport in New York City.

The KDB has yet to announce its official position as to a Korean Air takeover of Asiana. Aviation industry sources believe the lender will look into similar cases abroad.

“Generally speaking, an airline which is put up for sale is acquired by another carrier, just like the case of the merger between Air France and KLM,” a local aviation industry source said. “Jeju Air also planned to take over Easter Jet, even if the deal ended up with a rupture.”

Korean Air's possible acquisition of Asiana is also feasible, but the deal is unlikely to make rapid progress given the financial difficulties that Korean Air faces in the aftermath of international flight declines due to the pandemic shock, according to the official.

“Korean Air is still suffering from the pandemic amid a steep fall in demand for passenger flights,” the source said.

Korean Air is on track to normalize its business from the virus shock, so the airliner needs to win financial backing from the KDB. With the lender possibly taking part in the deal as a financial investor, Hanjin KAL can become the biggest shareholder of Asiana.

The state-run lender was the first to have floated the idea. Both airlines received trillions of won in financial support from state-run lenders, such as the KDB and the Export-Import Bank of Korea, after the outbreak of COVID-19 earlier this year.