New Mega Carrier Emerges... Is the Aftershock of Restructuring Beginning?

The Prelude to Restructuring: Duplicate Elements and Route Reorganization
Emergency Meeting of 6 Unions "A Time of Pain May Come"

[Image source=Yonhap News]

[Asia Economy Reporter Yoo Je-hoon] If Hanjin Group's acquisition of Asiana Airlines proceeds smoothly, restructuring is an inevitable step. The combined debt of Korean Air and Asiana Airlines exceeds 30 trillion won, and due to the impact of the COVID-19 pandemic, sales have plummeted, causing the majority of employees to enter paid and unpaid leave. As a result, employees of both companies are expressing anxiety about the potential workforce restructuring that may follow. The six labor unions affiliated with both companies held an emergency meeting on the 16th and are actively discussing countermeasures.

In the aviation industry, it is expected that Hanjin Group will first address overlapping business elements after completing the acquisition. For example, sales organizations such as domestic and overseas branches and overseas business divisions are representative cases. An industry insider said, "The easiest way is to reduce costs by transferring non-core organizations to Korean Air."

Route restructuring is also expected to become visible. Currently, 11 out of 12 (91%) of the trans-Pacific and European routes owned by Asiana Airlines overlap with routes operated by Korean Air. Some routes even overlap by only 20 to 30 minutes in schedule. Another industry insider said, "Frequency is beneficial when high, and considering competitiveness during the post-COVID-19 demand recovery period, large-scale route cuts will not be attempted. We believe that by discussing with authorities and changing flight times, sufficient synergy effects can be achieved."

However, considering monopoly controversies, domestic flights are likely to be reduced in some way. The domestic market share of the Hanjin affiliates (Korean Air and Jin Air) and Kumho affiliates (Asiana Airlines, Air Busan, and Air Seoul) reaches 62.5%, making them an oligopolistic operator upon merger and acquisition (M&A).

Restructuring of subsidiaries is also inevitable. While the sale of the grandchild company Kumho Resort is already underway, low-cost carriers (LCCs) Air Busan and Air Seoul are likely to come under scrutiny. This is an issue that could lead to restructuring among LCCs, attracting industry attention.

The integration of the aircraft maintenance, repair, and overhaul (MRO) sector is also being proposed, mainly by creditors. Asiana Airlines outsources most of its heavy maintenance, such as engines, to foreign MRO companies, and creating an integrated corporation could internalize the high-cost maintenance system.

Additionally, medium- to long-term tasks include fleet restructuring. If the acquisition succeeds, the number of aircraft types operated by both companies will increase to 12. A representative from a national airline said, "Although not as fragmented as LCCs, if the fleet becomes fragmented, ancillary costs for maintenance and repair will inevitably increase. While not immediate, the fleet will be simplified through early retirement of aging aircraft and early return of leased aircraft."

Employees of both companies are tense about these restructuring scenarios. 'Cost reduction' by any means can lead to restructuring. A representative of the six labor unions expressed concern, saying, "Korean Air also has significant debt, so I don't know if it is a reasonable decision to have Asiana Airlines, which carries 12 trillion won in debt, acquired. Although the two companies may create synergy after the acquisition, given the ongoing COVID-19 situation, a 'time of pain' is bound to come sooner or later."

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