Chairman Dong-geol Lee's 'Korean Air + Asiana Airlines' Big Deal... Discussed at Ministerial Meeting on the 16th

[Asia Economy Reporter Jo Gang-wook] As early as this week, a restructuring plan for the aviation industry is being promoted to merge Korea's top two airlines, Korean Air and Asiana Airlines, into a mammoth full-service carrier (FSC). This is a strategy to reorganize the aviation industry by facilitating a mega merger and acquisition (M&A) deal amid the prolonged crisis caused by COVID-19.

According to financial circles on the 15th, the plan to normalize Asiana Airlines, led by the Korea Development Bank (KDB), is scheduled to be discussed at the Ministerial Meeting on Strengthening Industrial Competitiveness (San-gyeong-jang) on the 16th.

It is known that Lee Dong-gul, chairman of KDB, has been drafting the integration blueprint since September, right after HDC Hyundai Development Company's acquisition of Asiana Airlines fell through. In particular, he drew up a big deal scenario while liaising with related government ministries such as the Ministry of Economy and Finance and the Ministry of Land, Infrastructure and Transport, as well as with the Hanjin Group.

KDB is said to have referred to overseas cases such as France and Germany, countries with populations similar to South Korea, while pushing for the big deal between Korean Air and Asiana Airlines. There are many cases where airlines have secured international competitiveness through mergers.

In the U.S., Delta Air Lines merged with Northwest Airlines; in Europe, Lufthansa acquired Swissair, and Air France merged with the Dutch airline KLM.

Earlier, Chairman Lee had also conducted similar transactions, such as entrusting Daewoo Shipbuilding & Marine Engineering to Hyundai Heavy Industries Holdings. Last year, KDB privatized Daewoo Shipbuilding by contributing all its shares (55.7%, 59,738,211 shares) as a non-cash contribution to establish a holding company (Korea Shipbuilding & Offshore Engineering) together with Hyundai Heavy Industries.

Therefore, if this big deal proceeds, it is highly likely to be pursued in a manner similar to Hyundai Heavy Industries' acquisition of Daewoo Shipbuilding. One proposed method is for Hanjin Kal, at the top of Hanjin Group's governance structure, to invest funds through a third-party allotment of new shares, enabling Hanjin Kal to purchase Asiana Airlines shares (30.77%) held by Kumho Industrial.

This structure effectively involves KDB participating as a financial investor, allowing Hanjin Kal, which becomes the largest shareholder of Asiana Airlines, to reduce the acquisition burden accordingly.

Another scenario being discussed is separating the MRO (Maintenance, Repair, and Overhaul) organizations of Korean Air and Asiana Airlines to create a separate legal entity.

Asiana Airlines has exhausted 3.3 trillion KRW in support from KDB and the Export-Import Bank of Korea and received an additional 240 billion KRW from the Industrial Stabilization Fund. Korean Air received 1.2 trillion KRW in support from KDB and the Export-Import Bank in April this year and is expected to apply for the Industrial Stabilization Fund soon.

However, if Hanjin Group, which owns Korean Air, acquires Asiana Airlines, an airline with over 60% domestic market share will be created, so prior approval from the Korea Fair Trade Commission (KFTC) for the corporate merger review is a variable. On the other hand, if the KFTC judges Asiana Airlines as a company that cannot be rehabilitated, it may allow the merger, similar to its approval of the Jeju Air-Eastar Air and Hyundai Motor-Kia Motors mergers.

Additionally, approval from foreign competition authorities is also required. Even if the KFTC approves, if foreign countries where Korean Air and Asiana Airlines generate revenue do not approve the merger, the merger itself could be canceled.

The government is understood to sympathize with Chairman Lee's 'mega big deal plan' as the aviation industry faces a cliff-edge crisis due to the prolonged COVID-19 pandemic.

Do Kyu-sang, vice chairman of the Financial Services Commission, said after the Financial Risk Response Team meeting on the 13th, "KDB is reviewing various possibilities, and if it helps in various aspects, there is no particular reason to refuse (Korean Air's acquisition of Asiana Airlines)."

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