Even the Theory of Failed Acquisition... Aviation Rescue Restructuring Faces One Challenge After Another

The departure hall of Terminal 1 at Incheon International Airport was quiet on the 23rd due to the impact of COVID-19. Photo by Moon Honam munonam@

[Asia Economy Reporter Yu Je-hoon] The aviation industry is facing a crisis due to the COVID-19 pandemic, causing difficulties in industry restructuring efforts. The first domestic airline merger and acquisition (M&A) case, the Asiana Airlines acquisition, is facing the possibility of an "indefinite delay," with rumors of cancellation emerging. Meanwhile, low-cost carrier (LCC) Eastar Jet has begun large-scale layoffs, pushing it into a survival crisis.

According to the aviation industry on the 2nd, Asiana Airlines recently revised its public disclosure regarding the payment date for the approximately 1.47 trillion KRW paid-in capital increase originally scheduled for the 7th. The new payment date is set as "10 days after all conditions precedent to closing the transaction are met or on a date otherwise agreed upon by the parties." Additionally, Asiana Airlines changed the scheduled listing date of the new shares from the 24th of this month to "within 15 days after the payment date." This means the completion of the acquisition, originally planned for the end of this month, may be postponed.

The official reason for the delay, as explained by both HDC Hyundai Development Company and Asiana Airlines, is the delay in the corporate merger review process. The COVID-19 situation has caused delays in reviews by related countries, including China.

However, within the industry, there is speculation that HDC Hyundai Development Company is feeling the burden of the worsening aviation market. In fact, as various countries have tightened entry restrictions on passengers from Korea due to COVID-19, Asiana Airlines' flight operation rate has dropped to 7.6%.

Asiana Airlines has taken self-help measures such as unpaid leave for all employees (15 days) and executives returning their salaries. However, fixed costs such as aircraft lease fees remain a burden. As of the fourth quarter of last year, the minimum operating lease payments Asiana Airlines must pay within one year amount to 917.1 billion KRW. Meanwhile, Asiana Airlines' stock price has fallen to about 60% of the level at the beginning of the year (January 3rd, 5,590 KRW per share). As of the previous day, the market capitalization was approximately 740 billion KRW, which is less than one-third of the acquisition price (2.5 trillion KRW).

Because of this, there are industry speculations that HDC may abandon the acquisition if there is no support from creditors such as the Korea Development Bank. In that case, they would also have to forfeit about 10% of the acquisition price, approximately 250 billion KRW. However, both parties have denied the possibility of the acquisition falling through.

The management situation of Eastar Jet, the first M&A target among LCCs, is also deteriorating. After suspending all routes, the company is considering layoffs of about 750 employees, approximately 45% of its workforce. This is the first time an airline has conducted layoffs since the COVID-19 outbreak. Eastar Jet, which had already delayed wages for February and March, recently returned 10 aircraft, half of its fleet. Fortunately, Jeju Air confirmed the acquisition of Eastar Jet after about three months of deliberation, so there is no risk of the M&A deal collapsing. However, Eastar Jet must survive independently until all procedures are completed.

This content was produced with the assistance of AI translation services.