[Column] San-eun, Controversy Over Special Privileges for Hanjin Family

[Asia Economy Reporter Jo Gang-wook] The era of the two major national airlines that has continued for 32 years since the launch of Asiana Airlines in 1988 is coming to an end. In order to revive the domestic aviation industry, which is facing severe management difficulties due to the COVID-19 pandemic, the plan is to merge Korean Air and Asiana Airlines into a mega carrier ranked seventh in the world, but the aftermath is not insignificant.

One of the suspicions is that the current management, including Chairman Cho Won-tae of Hanjin Group, who is engaged in a management rights dispute with the 'KCGI three-party alliance,' is being supported with taxpayers' money. As the controversy grew, the Korea Development Bank (KDB), which is promoting this 'mega big deal,' disclosed an agreement imposing seven obligations on Hanjin KAL, the parent company of Korean Air, including the right to nominate outside directors and prior consultation on major management matters, in an effort to calm the situation.

The seven obligations mainly strengthen KDB's supervisory and management authority for Korean Air's acquisition of Asiana Airlines, and if Hanjin KAL fails to properly fulfill these obligations, it must pay a penalty of 500 billion KRW and bear compensation liability. In particular, it includes a provision that if the Cho family is involved in any abuse of power controversy, the management can be replaced through the Ethics Management Committee.

The background for this strong measure is interpreted as being conscious of the controversy over preferential treatment resulting from Korean Air's acquisition of Asiana Airlines. However, the controversy does not subside. Criticism is emerging that the state-run bank is defending Chairman Cho's management rights with public funds amid a confrontation over securing management rights of Hanjin KAL. However, it is analyzed that KDB prepared this measure to strengthen supervision over management and the owner family through the seven obligations and to smoothly promote the restructuring of the aviation industry.

Nevertheless, suspicions remain as Chairman Cho gains the advantage of acquiring Asiana Airlines in a 'low-cost, high-efficiency(?)' manner and strengthening his management rights over Hanjin KAL. This is why there are claims that even if funds raised through issuing convertible bonds are used to participate in Korean Air's paid-in capital increase, the holding company’s mandatory shareholding requirements can be met. Although management dismissal is possible in the future, there are also criticisms that in this emergency situation, KDB inevitably becomes a friendly force to the current management.

Until now, whenever the owner family’s 'abuse of power controversy' arose at Korean Air, consumers’ alternative was Asiana Airlines. Now, even that alternative has disappeared. Ultimately, while this deal may be a 'win-win' for Chairman Cho and KDB, it is a matter that needs to be carefully reconsidered whether it is the best choice for consumers as well as for Asiana Airlines and Korean Air.

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