Korean Air and Asiana 'Under One Roof'... "Long-term Positive Sentiment for Airline Stocks"

Asiana Airlines and Subsidiaries Positive for Stock Price in Short Term
Korean Air Should Focus on Strengthening Competitiveness Over Financial Burden

[Asia Economy Reporter Minji Lee] As Hanjin Group is reportedly pursuing a plan to acquire Asiana Airlines in cooperation with the Korea Development Bank (KDB), it is expected to act as a positive factor for Asiana Airlines. In the long term, it is anticipated to send a positive signal for investment in airline stocks, given the government's intention to strengthen the competitiveness of South Korea's aviation market.

[Image source=Yonhap News]

According to the aviation and financial investment industries on the 15th, an announcement regarding Hanjin Group's plan to acquire Asiana Airlines, which is owned by Korean Air, is expected soon. The government plans to hold a meeting of the Ministers for Industrial Competitiveness Enhancement (San-gyeong-jang) on the 16th to discuss measures to normalize Asiana Airlines.

It is expected that Hanjin Group will acquire Asiana Airlines with support from KDB. The current plan under discussion involves KDB injecting funds through a third-party allotment capital increase in Hanjin KAL, and Hanjin Group using these funds to acquire 30.77% of Asiana Airlines shares held by Kumho Industrial. In this scenario, KDB effectively participates as a financial investor (FI), while Hanjin Group secures equity.

If Korean Air and Asiana Airlines become part of one group, an oligopolistic airline group will be formed. Last year, the combined passenger market share of these two companies (including LCCs) reached 54%. The total number of aircraft will exceed 300, enabling them to leap into the global top 20. In the Asian aviation market, they will rank as the 5th largest operator by revenue. Choi Gyo-woon, a researcher at Korea Investment & Securities, said, “Since KDB has to provide funds to both national carriers, integrating them will more efficiently induce restructuring of the aviation market than supporting them separately.”

Researcher Choi added, “In the short term, this is expected to be a positive factor for Asiana Airlines, and the turnaround expectations that had stalled after HDC Hyundai Development Company will regain attention. Although discussions regarding the subsidiary Air Busan have not been finalized, it is currently reasonable to have positive expectations.”

On the surface, Korean Air might worry about the winner’s curse, but the key point is that it will be able to dominate South Korea’s aviation market. If Hanjin KAL takes the lead in the acquisition and KDB’s funds are injected, the focus should be on the government’s grand strategy to strengthen the competitiveness of the Korean aviation market rather than concerns about financial risks.

In fact, on the 13th, when news about Korean Air’s acquisition of Asiana Airlines surfaced, shares of Kumho Asiana Group affiliates surged about 30% in one day. Asiana Airlines rose about 8% in a single day, and Kumho Industrial preferred shares hit the upper limit. Asiana IDT and Air Busan increased by 9% and 7%, respectively. In contrast, shares of Hanjin KAL and Korean Air fell about 8% and 2.6%, respectively. Finally, researcher Choi explained, “Once short-term uncertainties are overcome until the detailed acquisition plan is finalized, the focus of airline stock investment will shift to expectations of policy benefits.”

Meanwhile, the activist private equity fund (PEF) KCGI, which has been in conflict with Chairman Cho Won-tae over the management rights of Hanjin Group, has expressed opposition to the acquisition of Asiana Airlines. The 'three-party alliance,' including KCGI, stated in a press release that “If the purpose is to strengthen competitiveness in the aviation industry through integration, direct support to Korean Air would suffice. Issuing new shares to Hanjin KAL, a healthy company with a debt ratio of only 108%, can only be interpreted as an attempt to create a friendly equity stake for Cho Won-tae and the existing management.”

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