Aviation M&A at a Dead End... Will the Restructuring of the Aviation Industry Result in a Hard Landing?

On the 18th, the departure hall of Terminal 1 at Incheon International Airport was deserted due to the impact of the novel coronavirus disease (COVID-19), as the aviation industry, hit hard by COVID-19, faces a wave of layoffs. Photo by Moon Honam munonam@

[Asia Economy Reporter Yoo Je-hoon] The acquisition and merger (M&A) process of Asiana Airlines and Eastar Jet, which had attracted attention as the first restructuring case in the aviation industry, has reached a crossroads. This is due to the ripple effects of the novel coronavirus disease (COVID-19), causing the acquiring companies HDC Hyundai Development Company and Jeju Air to reconsider giving up.

Industry experts believe that if these M&As, considered 'big deals,' collapse, the future restructuring of the aviation industry is more likely to proceed as a 'hard landing' rather than a smooth one.

According to the industry on the 19th, HDC Hyundai Development Company's bid for Asiana Airlines and Jeju Air's bid for Eastar Jet remain deadlocked without significant progress. In the case of Jeju Air, on the 16th, it announced that "Eastar Holdings failed to fulfill the preconditions, thereby satisfying the right to terminate the contract."

Jeju Air had issued a 'final ultimatum' on the 1st demanding the resolution of various unpaid debts amounting to 170 billion KRW, but Eastar Holdings failed to comply. In fact, Eastar Jet, with the decision of the pilots' union, has agreed to return part of the 26 billion KRW in overdue wages, but has made no significant progress regarding other major unpaid debts such as lease fees, fuel costs, and handling fees.

Jeju Air has left room to consider government mediation regarding the final decision to terminate the contract, but inside and outside the industry, it is widely believed that they are weighing the timing in light of accountability for the possible collapse of the acquisition. An industry official said, "Since the government is mediating, it would be difficult to abruptly notify contract termination," adding, "They are likely weighing the timing considering various circumstances."

The Asiana Airlines acquisition is also challenging. Kumho Industrial recently sent a certified letter to HDC Hyundai Development Company urging the completion of the deal and indicated that if no specific position is presented within a month, the contract could be terminated. However, HDC Hyundai Development Company has not responded.

There is also analysis within the industry that HDC Hyundai Development Company may be considering the collapse of the Asiana Airlines acquisition. The exchange of 'certified letters' between the two parties is seen as a move anticipating legal disputes following a potential collapse.

The general view is that the prolonged downturn in the aviation industry caused by COVID-19 is the reason the two major big deals are heading toward collapse. In June, international passengers decreased by more than 97% compared to the previous year, and as the spread of COVID-19 continues worldwide, a rapid recovery in business conditions is unlikely in the near term. The International Air Transport Association (IATA) even forecasts that air travel demand will not return to 2019 levels by 2023.

As the two big deals approach collapse, experts worry that the industry restructuring, which was expected to be a smooth landing through M&A, may instead result in a 'hard landing.' Even before COVID-19, some level of restructuring was inevitable due to oversupply, and if M&As fail, bankruptcies and restructuring may follow.

In fact, the industry expects that if Eastar Jet's acquisition ultimately fails, court receivership and liquidation will be unavoidable. In that case, the approximately 1,600 Eastar Jet employees could face job losses. As for Asiana Airlines, it is highly likely to undergo a long-term separation sale under creditor management. Even then, efforts such as restructuring for business normalization may be pursued.

Another industry official said, "Until this year, employment retention subsidies and paid-in capital increases will help sustain operations, but by the end of this year or early next year, even these measures will reach their limits," adding, "From early next year, airlines like Eastar Jet, which face survival concerns, may emerge."

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