Asiana Airlines Ultimately 'No Deal'... 2.4 Trillion Won Injection from Kian Fund (Comprehensive)

Kumho Industrial Officially Notifies HDC Hyundai Development of Contract Termination
2.1 Trillion Won Market Stabilization and 0.3 Trillion Won Liquidity Support for Asiana Airlines
Kumho Express Faces 400 Billion Won Shortfall by Year-End... Will Provide Liquidity Support

[Asia Economy Reporter Kangwook Cho] The sale process of Asiana Airlines, which had been dragging on for over 10 months, has ultimately fallen through. A total of 2.4 trillion KRW from the Industrial Stabilization Fund will be injected into Asiana Airlines, including 2.1 trillion KRW for market stabilization funds and 300 billion KRW for liquidity shortage funds.

Asiana Airlines will once again come under creditor management after six years due to the failed sale. The creditors plan to restore Asiana Airlines through three measures: route adjustments, cost reductions, and organizational restructuring.

Kumho Industrial Officially Notifies HDC Hyundai Development Company of Contract Termination on the 11th

On the 11th, the Korea Development Bank (KDB) announced that Kumho Industrial officially notified HDC Hyundai Development Company of contract termination.

Choi Dae-hyun, Vice President of KDB’s Corporate Finance Division, officially declared the failure of the Asiana Airlines sale (no deal) during an online briefing that afternoon.

Vice President Choi explained, "The creditors recently held meetings between top executives to discuss HDC’s concerns, conveyed support plans and commitment, and made every effort to conclude the deal. However, HDC maintained its position of requiring a re-inspection before finalizing the transaction and rejected the proposals."

He added, "Considering the COVID-19 situation, HDC’s demands were excessive, and if the uncertain M&A situation prolongs, it is expected to cause significant setbacks to Asiana Airlines’ normalization efforts. Therefore, after consulting with Kumho, we decided to pursue self-normalization."

Accordingly, Asiana Airlines will receive 2.4 trillion KRW in Industrial Stabilization Fund support, and management and organizational reform will be carried out under creditor management.

Vice President Choi said, "In the final meeting between CEOs, we proposed sharing the management risks caused by COVID-19 and asked for specific requirements, but HDC Hyundai Development rejected this, which is regrettable. Although the re-inspection request was the apparent reason, the fundamental reason was their difficulty in bearing COVID-19 risks."

He continued, "Both Kumho and HDC view this deal break as the other party’s fault, so lawsuits for contract deposit refunds are expected. The resale of Asiana Airlines will proceed depending on the litigation situation."

2.1 Trillion KRW Market Stabilization Funds, 0.3 Trillion KRW Liquidity Shortage Funds, Total 2.4 Trillion KRW Support

The Industrial Stabilization Fund held its 15th Fund Operation Committee meeting and approved support for Asiana Airlines.

The support amount totals 2.4 trillion KRW, consisting of 2.1 trillion KRW in market stabilization funds to cover repayment obligations of financial debts (ABS, financial leases, etc.) that may arise if credit ratings fall due to the failed M&A, and 300 billion KRW in liquidity shortage funds. The support method includes 1.92 trillion KRW (80%) in operating loans and 480 billion KRW (20%) in perpetual convertible bonds (CB) acquisition.

However, the fund expects that if Asiana Airlines’ credit rating is maintained through this support, the loan amount will significantly decrease.

Asiana Airlines, receiving fund support, plans to comply with support conditions stipulated in the Korea Development Bank Act, including employment retention, management improvement efforts, prohibition of dividend payments, and prohibition of salary increases for high-income earners.

Fund Operation Committee Discussed Asiana Airlines Support Due to Sale Failure Since Early July

Since early July, the Fund Operation Committee has held several meetings to conduct in-depth discussions not only on the progress of the M&A with HDC Hyundai Development Company but also on the necessity of Industrial Stabilization Fund support.

It is known that due to the high variability of COVID-19, it was difficult to predict Asiana Airlines’ future management outlook.

The committee stated, "If Asiana Airlines’ M&A fails amid the prolonged COVID-19 crisis and the overall aviation industry’s crisis, it would cause massive unemployment and significantly weaken the competitiveness of the domestic aviation industry, resulting in enormous economic losses for the country. After thorough discussions, we decided to support Asiana Airlines with the Industrial Stabilization Fund."

Creditors Express Deep Regret Over Failed M&A with HDC Hyundai Development

The creditors, including KDB and the Export-Import Bank of Korea, expressed deep regret over the failed M&A of Asiana Airlines.

The creditors announced plans to implement a government-wide normalization plan to minimize the management crisis of Asiana Airlines and the resulting disruptions to flight operations and negative economic impacts.

First, the creditors will actively support Asiana Airlines’ stable operations by providing a new credit line of 2.4 trillion KRW through the Industrial Stabilization Fund.

Under creditor management, Asiana Airlines will continue management reform and self-help plans, making every effort to enhance corporate value through route optimization and cost reduction.

Asiana Airlines’ Self-Help Plan Includes Route Adjustments, Cost Reductions, and Organizational Restructuring

The creditors plan to restore Asiana Airlines through three measures: route adjustments, cost reductions, and organizational restructuring.

Vice President Choi said, "The self-help plan for Asiana Airlines, based on external consulting results, includes three measures: route adjustments, internal cost reductions, and organizational restructuring."

He evaluated that Asiana Airlines has been implementing maximum self-help efforts since early this year through cyclical leave, paid leave, and salary returns and cuts by executives. This is expected to reduce labor costs by about 180 billion KRW by the end of next month.

However, even with organizational restructuring, since 2.4 trillion KRW from the Industrial Stabilization Fund will be supported, immediate workforce restructuring is not planned. If the fund is supported, more than 90% of employees must be retained for six months. Nevertheless, the market expects that workforce reductions through voluntary retirement will eventually proceed for structural improvement.

Subsidiaries Such as Air Seoul and Air Busan to Be Sold Separately... Capital Reduction Also to Be Considered Comprehensively Later

Separate sales of subsidiaries such as Air Seoul and Air Busan are also under consideration, as prohibiting affiliate support is one of the conditions for Industrial Stabilization Fund support.

Vice President Choi said, "During consulting, subsidiary sales will also be reviewed. Air Seoul, Air Busan, and other areas including golf courses and resorts are within the scope of consulting and need to be considered."

However, he was reserved about capital reduction of Asiana Airlines’ shares.

Vice President Choi said, "Capital reduction will be comprehensively reviewed later depending on the company’s year-end financial status, creditor management situation, and whether M&A is reattempted. It is inappropriate to discuss it now."

Emergency Liquidity Support for Kumho Express... Plans to Reattempt Asiana Airlines Sale

The creditors also said they will implement various measures to normalize and stabilize management, including providing emergency liquidity support to Kumho Express, which has been affected by COVID-19. They plan to responsibly and competently reattempt the sale of Asiana Airlines as soon as conditions allow.

Vice President Choi explained, "A brief due diligence on Kumho Express showed a shortage of about 110 billion KRW by the end of this month and about 400 billion KRW by year-end. We will first provide 120 billion KRW and decide on additional support after detailed due diligence."

He added, "Liquidity support will be provided on the premise of thorough pain-sharing by major shareholders, the company, and employees to promote Kumho Express’ normalization."

KDB Chairman Lee Dong-geol Visits Asiana Airlines... Urges Pain-Sharing and Management Reform Efforts

On the afternoon of the same day, KDB Chairman Lee Dong-geol visited Asiana Airlines headquarters and met with employees to explain the government and creditors’ determination and plans for normalization.

In particular, Chairman Lee urged the company’s employees to share the pain and make efforts toward management reform and normalization.

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