The owner of Korean Air Lines Hanjin KAL, is set to buy Asiana Airlines as Asiana’s state-run creditor Korea Development Bank (KDB) plans to inject 800 billion won (US$723.55 million) into Hanjin KAL, Korean Air announced on Monday (16 November).
The acquisition would combine the country’s two biggest airlines, although Hanjin KAL’s largest shareholder – an activist fund – has spoken out against the idea, according to reports. KDB will inject 500 billion won into Hanjin KAL as a third-party capital increase, and buy 300 billion won worth of exchange bonds. With KDB injecting funds into Hanjin KAL, the latter is likely to buy a 30.77 percent stake in Asiana Airlines owned by Kumho Industrial.
“Given the crisis the airline industry is currently facing, it is unavoidable to restructure the entire market, including Korean Air, Asiana Airlines, the low-cost carriers such as Jin Air, and relevant industries,” Korean Air said in its statement. “Korea Development Bank’s shares will be ordinary shares with a voting right, and Korea Development Bank will monitor and make sure Hanjin KAL and Korean Air follow through with acquisition plans.”
The main reason behind Korean Air’s decision to acquire Asiana Airlines at this time is to stabilise the Korean aviation industry, which is suffering from the COVID-19 pandemic as are airlines around the world. “Considering that Korean Air’s financial status could also be endangered if the COVID-19 situation is prolonged, it is inevitable to restructure the domestic aviation market to enhance its competitiveness and minimise the injection of public funds,” Korean Air said. “Korean Air decided to acquire Asiana Airlines after much consideration and deliberation in order to pursue its founding mission to contribute to the nation through transportation. Following its mission, the carrier will ensure job security for employees at both airlines as well as relevant industries and support the development of Korea’s aviation industry.”
Korea Air said having two full-service carriers in a relatively small market will be a “competitive disadvantage” compared to countries like Germany, France and Singapore, each with a single major airline, but added that Korean Air’s acquisition and the expansion of its routes, fleet and capacity will give the airline the competitiveness to compete with global mega airlines”.
The merger of the two airlines is expected to further enhance the competitiveness of the Korean aviation industry with more streamlined route operations and lower costs. More slots secured at Incheon International Airport, a transport hub in Asia, through the consolidation of the airlines, may lead to an increase in joint ventures with global airlines and greater transfer demand, which will also spur the growth of the domestic aviation industry.