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Korean Air to buy indebted Asiana, emerging as world's 10th-largest airline

Korean Air and Asiana Airlines' planes in local airports. (Yonhap)
Korean Air and Asiana Airlines' planes in local airports. (Yonhap)
Korean Air Lines Co., South Korea's biggest carrier, said Monday that it will acquire Asiana Airlines Inc. in a deal valued at 1.8 trillion won ($1.6 billion) that would create the world's 10th-biggest airline by fleets.

Korean Air plans to raise 2.5 trillion won via rights offerings early next year. Of the proceeds, it will spend 1.5 trillion won to buy new shares to be sold by Asiana and 300 billion won worth of Asiana perpetual bonds, the company said in a statement.

"The company made the decision to help the country's airline industry continue to grow (amid uncertainties) and minimize the injection of public funds (into Asiana)," Korean Air Chairman Cho Won-tae said in the statement.

The chairman said the company will put the job security of current employees at the two airlines before anything else in the acquisition process.

The state-run Korea Development Bank (KDB), the main creditor of Asiana Airlines, will inject 800 billion won into Hanjin KAL, Korean Air Lines' parent firm, through a rights offering and convertible bonds. Hanjin KAL will then participate in the 2.5 trillion won worth of stock sale by Korean Air.

Korean Air, currently the world's 18th largest, will become Asiana's biggest shareholder with a 63.9 percent stake if the acquisition is completed.

Kim Sang-do, deputy minister for civil aviation at the Ministry of Land, Infrastructure and Transport, said it is an "inevitable decision" to integrate the country's two biggest airlines to prevent them from making bigger losses amid the extended COVID-19 pandemic.

The country's antitrust regulator will review the deal over the issue of monopoly. If things go smoothly, the deal is expected to be completed later next year, he said.

Hanjin KAL, the holding company of airline conglomerate Hanjin Group, is expected to submit a letter of intent to the KDB this week to proceed with the deal. 

As of 2 p.m., Hanjin KAL jumped 16 percent to 89,800 won, Korean Air surged 20 percent to 28,600 won and Asiana Airlines jumped by the daily limit of 30 percent to 5,570 won. All three far outperformed the broader KOSPI's 1.9 percent gain.

Under the acquisition plan, Korean Air will gradually integrate three low-cost carriers -- Korean Air's Jin Air Co. and Asiana's Air Busan Co. and Air Seoul Inc. -- after completing the acquisition of Asiana.

The majority Asiana stake is held by Kumho Industrial Co., an affiliate of airline-to-petrochemical conglomerate Kumho Asiana Group.

In September, Asiana's creditors -- the KDB and the Export-Import Bank of Korea -- decided to end a drawn-out deal to sell Asiana to a consortium led by HDC Hyundai Development Co. over differences over terms of the deal amid the extended COVID-19 pandemic.

The HDC-led consortium initially signed the deal to acquire Asiana from Kumho Industrial, as well as new Asiana shares to be issued and the carrier's six affiliates, for 2.5 trillion won.

But HDC later demanded a renegotiation with Kumho and the creditors over the terms and another round of due diligence on Asiana to reflect the pandemic's impact on the airline industry.

The demand was rejected by the creditors.

Hit hard by the unprecedented pandemic, airlines have suspended most of their flights on international routes since March, and travel demand has dried up. (Yonhap)
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