Korean Air acquires Asiana Airlines … Mountains are “one of many options”

Input 2020.11.12 21:01 | Revision 2020.11.12 23:33

Major overhaul of the aviation industry for restructuring efficiency … One of the world’s top 10 airlines
Korea Development Bank, scenario of Hanjin Kal’s capital increase … Strong backlash from wealth funds expected

Korean Air (003490)Hanjin Group, which has Asiana Airlines (020560)A plan to acquire the company is being studied. It is planning to launch a large domestic airline through the “Big Deal” of the first and second Korean airline (FSC). Some analysts say that the authorities’ judgment that restructuring the aviation industry can be promoted efficiently was at stake.

According to the financial sector and the aviation industry on the 12th, Hanjin Group is in talks with the Korea Development Bank, the main creditor of Asiana Airlines, to acquire Asiana Airlines. In a press release that day, the Korea Development Bank only revealed that it was “one of several options”. It was also possible that Hanjin Group could send a letter of intent (LOI) to Asiana Airlines during this month and go through the official acquisition process. There is also a story that the two companies will be officially announced at a meeting of ministers related to strengthening industrial competitiveness to be held next week.

How Hanjin Group acquires Asiana Airlines based on Korea Development Bank funding is discussed. Korea Development Bank is at the top of the Hanjin Group governance structure. Hanjin knife (180640)Hanjin Kal will purchase Asiana Airlines’ Kumho shares (30.77%) by investing funds through a paid capital increase method assigned to a third party. When the aviation industry has suffered the consequences of the new coronavirus infection (Corona 19), it plans to reorganize the FSC in one place. It also aims to reduce the cost burden by ensuring economies of scale.

When Korean Air and Asiana Airlines are merged, it will become the world’s top 10 largest domestic airline with assets of 40 trillion won and a turnover of 19 trillion 649.2 billion won. Korean Air owns 173 aircraft and Asiana Airlines has 86. With 259 units, the number of units held by competitor Air France will exceed 225 units.

According to the airline industry, the acquisition of Asiana Airlines is not a bad choice for group president Hanjin Cho Won-tae. In a situation where the KCGI (Strength Subsidiary Fund) is having a management rights dispute with the ‘Three-Party Shareholder Alliance’, if KDB secures Hanjin Kal’s third-party shareholder status, the chairman will gain friendly participation, which will allow stable management. President Cho owns a 41.14% stake in Hanjin Kal and a 46.71% stake in a third-party shareholder association such as KCGI.

As a scenario where Saneun becomes Hanjinkal’s aid launcher, controversy over preferential treatment could arise. It does not seem irrelevant that a Korea Development Bank official said: “It has not been confirmed at all, and on the contrary, Asiana Airlines is currently receiving business normalization advice.” Korean Air and Asiana Airlines officials also said: “It has not been confirmed.”

If such a scenario becomes visible, a backlash of the tripartite shareholder alliance formed by Cho Hyun-ah, former vice president of Korean Air and KCGI and Peninsula E&C is expected. There are multiple reasons why Korean Air’s acquisition of Asiana shouldn’t be smooth.

The poor financial structure of Asiana Airlines is also an obstacle. Asiana Airlines’ debt-to-equity ratio reached 2291% in June. The rate of capital erosion is also around 56%. As the Corona 19 crisis is expected to continue, it is not known when passenger demand will recover. Furthermore, it is unclear whether the Fair Trade Commission approves the business combination. This is because monopoly fears can arise. When the two companies merge, the share of passengers on a national basis rises to 62.5%.

Meanwhile, Asiana Airlines Hyundai HDC Industrial Development (294870)Since the department’s merger and acquisition (M&A) failed, it is managed by creditors such as the Korea Development Bank. Creditors are currently selecting EY Hanyoung and Bain & Company as their advisors and are preparing a plan to normalize management based on Asiana Airlines’ financial information.