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Ministries to discuss Korean Air’s plan to buy rival Asiana

Deal slammed by shareholder and private equity fund KCGI, which leads alliance with current chairman’s sister Heather Cho

Korean Air and Asiana Airlines planes stationed at Incheon International Airport. (Yonhap)
Korean Air and Asiana Airlines planes stationed at Incheon International Airport. (Yonhap)

Following reports of Korean Air’s possible acquisition of Asiana Airlines, the government is set to hold a meeting on Monday to discuss the deal between South Korea’s flag carriers, according to financial industry sources on Sunday.

During a ministerial meeting presided over by the country’s chief of economy and industries, ways to normalize Asiana’s business are expected to be discussed, including reported plans by Hanjin Group, which owns Korean Air, to buy out its troubled rival.

Some local media outlets have speculated that a deal could be announced as early as sometime this week, though both airlines have declined to comment.

The central part of the discussion would be fairness of the acqusition of the two major airline companies of Korea, examining the probabilities of approval from the antitrust watchdong.

However, as speculation grows before the government’s meeting, private equity fund KCGI -- a shareholder of Hanjin Kal -- said Sunday it wants to be in the driver’s seat in delivering the deal as it officially expressed opposition to the current plan once again.

“If Hanjin Kal insists on going ahead with a paid-in capital increase, our alliance offers to take part as a major shareholder as part of our responsible management efforts, instead of wasting taxpayers’ money by allocating it to a third party,” the fund said in a statement on Sunday.

On Friday, the KCGI branded the Korea Development Bank’s consideration of acquiring Asiana Airlines by funding Hanjin Kal as a “measure to preserve the position of the current management, ignoring the rights of other shareholders.”

For the current chairman of Korean Air, Cho Won-tae, who faces a leadership challenge from a three-way alliance led by KCGI -- alongside Bando Engineering & Construction, and his sister Cho Hyun-ah, also known as Heather Cho -- which owns most shares, the acquisition deal could solidify his position.

If the deal comes to fruition, the industry will see one of the biggest airlines in the world, boasting a combined fleet of 259 aircrafts and assets worth 40 trillion won ($36.1 billion).

At home, the two airlines including their low cost carriers - Jin Air, Air Seoul and Air Busan - will account for over 62 percent of the domestic flight market share, based on data from the Korea Airports Corporation last year.

Hurr Hee-young, a professor at Korea Aerospace University, pointed out that other markets of a similar size often have one national flag carrier such as Germany with Lufthansa and the UK British Airways.

“While the two major airlines have successfully co-existed in Korea, it appears that (the decision-makers) have now realized that one bigger airline might be better at competing with international airlines in terms of economies of scales,” he said.

Asiana Airlines is currently under creditor control after the acquisition talks with HDC Hyundai Development failed earlier this year.

With the industry beset by the ongoing pandemic, however, it has struggled to find a new buyer.

One likely scenario in which the deal could play out is for Hanjin Kal, the holding company of Hanjin Group, to buy a 30.77 percent stake in Asiana Airlines from Kumho Industrial which currently owns a controlling stake in the airline.

The deal will also see the state-owned KDB, the troubled airline’s creditor, invest in Hanjin Kal through a paid-in capital increase method allocated to a third party.

But concerns that the move might disrupt market fairness could also mean the airlines could be forced to part ways with some of their budget airlines.

“With its high market share, it might be difficult to get approval for the deal from the Fair Trade Commission, which could force Asiana Airlines to sell its budget airlines or give up traffic rights,” professor Hurr said.

If the FTC approves the deal between the airlines as they are by determining that Asiana is not “recoverable” and therefore applying an exceptional clause of the antitrust law, the move could also face criticisms over using more taxpayer money to bail out corporations.

Both Asiana Airlines and Korean Air received 3.3 and 1.2 trillion won, respectively, from state-run banks earlier this year after the coronavirus pandemic devastated the aviation industry.

By Yim Hyun-su (hyunsu@heraldcorp.com)
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