Industrial Bank Invests 800 Billion KRW in Hanjin KAL... Integration of Korean Air and Asiana Airlines

Strengthening the Fundamental Competitiveness of the Domestic Aviation Industry through the Launch of an Integrated National Airline
Signed an 800 Billion KRW Investment Agreement with Hanjin Group to Promote the Integration Process

[Asia Economy Reporter Jo Gang-wook] On the 16th, the Korea Development Bank (KDB) announced that it has decided to sign an investment contract worth a total of 800 billion KRW with Hanjin KAL to promote measures to enhance the competitiveness of the air transportation industry, centered on the integration of Korean Air and Asiana Airlines.

Choi Dae-hyun, Vice President of KDB, stated, "Hanjin KAL will participate in Korean Air's paid-in capital increase (2.5 trillion KRW) for the acquisition of Asiana Airlines, and Korean Air will invest a total of 1.8 trillion KRW through Asiana Airlines' new shares (1.5 trillion KRW) and perpetual bonds (300 billion KRW), becoming the largest shareholder of Asiana Airlines while resolving liquidity issues to promote the smooth integration of the two major national airlines."

KDB explained that the background for promoting the integration of the two major airlines is the recognition that without fundamental efforts to enhance competitiveness such as restructuring the airline industry amid intensified global aviation industry competition and the prolonged COVID-19 crisis, the normalization of domestic national airlines' management remains uncertain even after the end of the pandemic.

In fact, over the past 20 years, airline mergers and acquisitions have been actively carried out mainly in the US and Europe regardless of country or airline size to achieve economies of scale, resulting in most countries with populations over 100 million, including the US, China, and Japan, except Korea, being reorganized into a "one country, one national airline system." Recently, due to the prolonged COVID-19 crisis, discussions on airline mergers are underway in Japan, the US, China, and other countries.

KDB stated that the integrated national airline to be created through this transaction will secure a position and competitiveness at the top 10 level in the global aviation industry, enabling efficient response to the COVID-19 crisis and laying the foundation to leap forward as a world-class airline after the pandemic ends.

According to the International Air Transport Association (IATA), based on last year's passenger and cargo transport performance, Korean Air ranked 19th and Asiana Airlines 29th, and the simple sum of their transport volumes would elevate the ranking to around 7th worldwide. Based on the increased slot share at Incheon Airport, a hub airport, KDB expects that expansion of joint ventures with global airlines, development of new routes, and attraction of overseas transfer demand will enable external growth and realization of economies of scale. Additionally, profitability improvement is possible through integration synergies such as route operation rationalization, reduction of operating costs, and interest expense reduction.

Vice President Choi also said, "By establishing a structure where a large amount of funds can directly flow into the market during Korean Air's paid-in capital increase based on integration synergies, the scale of policy fund input required for the normalization of the airline industry can be minimized."

In addition to improving convenience for domestic air consumers through improved flight schedules and connections, route expansion, and mileage integration, the phased integration of the three LCCs?Jin Air, Air Busan, and Air Seoul?will reorganize the domestic LCC market, build a second hub based on regional airports, and expand routes to and from regional airports using surplus aircraft after integration, thereby revitalizing the regional economy. KDB also explained that securing maintenance volumes for both airlines will prevent outflow of national wealth by converting overseas outsourced maintenance to domestic demand and systematically foster the MRO industry (maintenance, parts orders, training, etc.), contributing to the development of related industries and enhancing the overall safety capabilities of the domestic aviation industry.

KDB and the Hanjin Group deeply recognize the importance of a single national airline in terms of national economy, public convenience, and safety, and plan to faithfully perform their roles as shareholders by establishing various institutional devices such as the Management Evaluation Committee and the Ethics Management Committee to ensure smooth implementation of the integration process. The Hanjin Group will practice responsible management, and KDB will fulfill its role in monitoring sound management.

In particular, since Hanjin KAL, the holding company of the Hanjin Group, is the contracting party of the transaction and the subject of contractual rights and obligations such as the investment agreement, a structure will be created to ensure that the integration process proceeds smoothly even if there is a change in management rights in the future.

Vice President Choi emphasized, "Considering the difficulties faced by aviation industry workers due to the prolonged COVID-19 pandemic, we will proceed with the integration swiftly, but we will also collect and sufficiently reflect the opinions of various stakeholders on anticipated issues and demands in various aspects such as employment stability, consumer benefits, and adjustment and reorganization of affiliated company functions during and after the integration process."

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