Korean Air-Asiana integration draws backlash

Korean Air and Asiana Airlines passenger jets are parked at Incheon International Airport, Nov. 17, a day after the Korea Development Bank announced its plan to support Korean Air's acquisition of Asiana. Yonhap

By Lee Min-hyung

A high-profile aviation deal between Korean Air and Asiana Airlines is facing a continuing strong backlash from a coalition of the former's shareholders who argue the decision is aimed at defending the managerial rights of Cho Won-tae, the chairman of Hanjin Group, the airline's parent corporation.

The opposition is centered on the Korea Development Bank's (KDB) participation in Korean Air's takeover of Asiana. The coalition ― consisting of former Korean Air Vice President Cho Hyun-ah, the Korea Corporate Governance Improvement (KCGI) private equity fund (PEF) and Bando Group ― is stepping up criticism of the state-run lender and Hanjin Group for pushing ahead with the deal that they argue will end up securing the leadership of Chairman Cho through the use of taxpayers' money.

Following the KDB announcement Monday, the KCGI started legal consultations with its advisory firm, Bae, Kim & Lee (BKL), to block the move.

The PEF denounced the alliance between the KDB and Chairman Cho claiming they carried out the deal in a slipshod and hasty manner, as Korean Air has not conducted any due diligence on Asiana.

“Their plan to take over Asiana Airlines, which is in a state of capital erosion and whose total debt reaches 12 trillion won, comes at a huge cost to other shareholders,” the KCGI said Tuesday. Chairman Cho holds a 6 percent stake in Hanjin KAL, the holding firm of Hanjin Group. But when the deal is finalized, the KDB will be able to secure a 10 percent stake in Hanjin KAL, which will be favorable for the chairman in defending his leadership, according to the KCGI.

Under the plan, the KDB will invest 800 billion won on behalf of Korean Air to make it the largest shareholder of Asiana.

The KDB wants to hurry to inject the capital and plans to finish the investment by the end of the year, citing the escalating uncertainty in the country's aviation industry.

But the opposing side is raising doubts over the sincerity of the plan, saying the move is “unreasonable and rash.”

The KCGI argues that the KDB has not previously injected capital to fund a takeover until specific legal procedures were undertaken, but this is not the case this time.

Despite the backlash, the KDB is in a position to speed up certain legal processes to finish the deal as early as possible.

“We are going to swiftly finish the integration between the two companies, and continue listening to any voices of concern from interested parties,” an official from the lender said, declining to comment further.

One of Korean Air's unions demanded the KCGI to stop raising controversy over the deal, Tuesday, saying it was the best option to stabilize the job security of employees at the two companies.

“The top priority for workers in the industry is employment stabilization, rather than the interests of creditors or shareholders,” the union said in a statement.