Asiana Airlines with Plan B... "Consultations Considering All Possibilities" (Comprehensive)

Creditors Consider Possibility of Sale Failure... Reviewing Additional Funding and Future Legal Disputes
Discussing Restructuring Under Creditors Instead of Sale to Clean Up Non-Performing Assets
Keeping in Mind the Case of SK Group's Core Affiliate Hynix, Which Rebounded with the Aviation Industry
Son Byung-du, Vice Chairman of Financial Services Commission, "We Are Proceeding with Discussions Considering All Possibilities"

[Image source=Yonhap News]

[Asia Economy Reporter Jo Gang-wook] The creditor group, including the Korea Development Bank (KDB) and the Export-Import Bank of Korea, has begun preparing a 'Plan B' related to the sale of Asiana Airlines. As HDC Hyundai Development Company has publicly requested a 12-week re-inspection of Asiana, causing difficulties, the creditors are reviewing not only additional financial support but also potential future legal disputes and creditor management plans. This appears to be in consideration of the possibility that the sale might fail.

Creditors Consider Possibility of Sale Failure

According to financial circles on the 28th, the creditor group is reportedly struggling to prepare countermeasures for various scenarios under the direction of Lee Dong-geol, chairman of KDB Industrial Bank. The first aspect under review is the estimation of funds Asiana Airlines will need in the future. Earlier in April, the creditor group injected 1.7 trillion won into Asiana Airlines, which was facing a liquidity crisis due to the impact of the novel coronavirus (COVID-19). Asiana Airlines posted a net loss of 683.4 billion won in the first quarter of this year, and its debt ratio sharply worsened from 1387% at the end of last year to 6280% at the end of March this year.

The newly provided 1.7 trillion won is a 'credit line' in the form of a negative account. It is known that Asiana has drawn about 400 billion won from this amount. The problem is that this fund is likely to be exhausted around the end of this year. Since the operating funds were originally calculated on the premise that HDC Hyundai Development Company would acquire Asiana, if the acquisition fails or negotiations are prolonged, additional funding will inevitably be required. Currently, of Asiana Airlines' 82 aircraft, 52 are leased, and about 500 billion won annually goes out as lease costs.

'Plan B' includes specific discussions on future operational plans emphasizing the possibility of sale failure. Instead of selling, the plan is to place Asiana under creditor management, similar to Daewoo Shipbuilding & Marine Engineering, where restructuring is used to eliminate non-performing assets and public funds are injected. Accordingly, if the M&A fails, Asiana Airlines is expected to undergo intensive restructuring under creditor supervision for the time being to shed non-performing assets.

There is also a possibility of public funds being injected. Even if Asiana Airlines is put up for resale under the current situation, it is expected to be difficult to find a buyer easily as the airline industry is experiencing the worst management difficulties. Its subsidiaries, Air Busan and Air Seoul, are also in a state of capital erosion, making it difficult to sell them separately.

Legal Disputes Possible if Acquisition Negotiations Fail

Furthermore, if acquisition negotiations with HDC Hyundai Development Company break down, the possibility of legal disputes over the refund of the deposit is also being considered. HDC Hyundai Development Company paid a deposit of 250 billion won when it signed the Share Purchase Agreement (SPA) with Kumho Industrial in December last year. A similar situation actually occurred during the sale of Daewoo Shipbuilding & Marine Engineering. In 2008, Hanwha Group pursued the acquisition of Daewoo Shipbuilding & Marine Engineering but gave up due to the global financial crisis. Hanwha forfeited the deposit of 315 billion won, which was 5% of the acquisition price of 6.3 trillion won, but later recovered 126 billion won through litigation.

However, the creditor group still emphasizes that, like SK Hynix, which has become a core affiliate of SK Group, Asiana Airlines could transform from an 'ugly duckling' to a 'swan' after acquisition by HDC Hyundai Development Company and a rebound in the aviation industry.

A creditor group official said, "It is basic to prepare countermeasures for various possibilities in any business negotiation," adding, "We will keep the negotiation channel open with HDC Hyundai Development Company and verify the sincerity of their acquisition intentions."

Financial Services Commission: "We Will Proceed with Consultations Considering All Possibilities"

The Financial Services Commission is currently considering all possibilities.

After the Financial Risk Response Team meeting on the day, Vice Chairman Son met with reporters and, when asked whether they are preparing for the possibility of nationalization if the Asiana Airlines acquisition negotiations fail, he said, "We are conducting inter-agency consultations considering all possibilities."

However, he cautioned against overinterpretation, saying, "There is no need to prematurely assume going this way or that way."

Regarding this, the Financial Services Commission explained that Vice Chairman Son's remarks "were made in the general context that related agencies should conduct close consultations as the M&A negotiations are currently ongoing," and "were not made based on any specific direction."

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