Korean Air-Asiana Acquisition Battle Begins... 3-Party Alliance Faces First Hurdle and Public Opinion Mountain

Union "Concerns Over Restructuring" Opposition ... Korean Air "Harmony Instead of Route Mergers, No Restructuring Expected"

[Image source=Yonhap News]

[Asia Economy Reporter Yu Je-hoon] With Korean Air's decision to acquire Asiana Airlines, the emergence of a mammoth airline ranked among the world's top 10 is imminent, but numerous obstacles await throughout the merger and acquisition (M&A) process set to unfold over the next seven months. Alongside the early controversies over preferential treatment, the unexpected challenge posed by the 'Shareholder Coalition for the Normalization of Hanjin Group (3rd Party Coalition)' has filed lawsuits to block the deal, while opposition from labor unions of both companies, political circles, and civic groups is gradually intensifying.

◆ Seven-month marathon of the acquisition begins... 3rd Party Coalition's injunction against new share issuance is first hurdle = According to the aviation industry on the 20th, Korean Air's acquisition of Asiana Airlines, ignited by the investment agreement signed between KDB Industrial Bank and Hanjin Group on the 17th, will officially commence with Hanjin KAL's third-party allotment rights offering in early December. Hanjin KAL will lend 800 billion KRW secured through the third-party allotment rights offering and exchangeable bonds (EB) issuance to Korean Air, which will then pay a contract deposit of 300 billion KRW to Asiana Airlines and begin due diligence.

Korean Air will then acquire convertible bonds (CB) worth 300 billion KRW of Asiana Airlines by the end of this year to secure shares, and in January next year, it will hold an extraordinary general meeting to increase the authorized share capital for a rights offering. Based on this, Korean Air will carry out a rights offering worth 2.5 trillion KRW in March and pay the interim payment of 400 billion KRW. In June, Korean Air will participate in Asiana Airlines' third-party allotment rights offering worth 1.5 trillion KRW. Through this, Korean Air will secure a 63.9% stake, incorporate Asiana Airlines as a subsidiary, and conclude the acquisition.

After the acquisition, the full-scale post-merger integration (PMI) process will begin. Through PMI, Korean Air will prepare for the merger with Asiana Airlines and promote mergers among subsidiaries. The integration of low-cost carriers (LCCs) Jin Air, Air Busan, and Air Seoul is a representative example.

However, the path to integration is long. First, the 3rd Party Coalition, the largest shareholder of Hanjin KAL holding 46%, has opposed the initial third-party allotment rights offering. On the 17th, they filed an injunction with the court to prohibit new share issuance, arguing that the third-party allotment rights offering for defending management rights is illegal. If the injunction is granted, the acquisition process will be derailed from the start. Under current commercial law, the conditions for third-party allotment rights offerings are limited to cases necessary for achieving business purposes such as introducing new technology or improving financial structure, which tends to favor the 3rd Party Coalition in precedent. Koo Jae-hyun, Deputy Governor of KDB, also stated, "If the injunction is granted, this transaction will be nullified." Additionally, the 3rd Party Coalition is considering various measures including the main lawsuit, extraordinary general meetings, and additional share purchases.

The extraordinary general meeting of Asiana Airlines scheduled for mid-next month is also drawing attention. The meeting will discuss a proposal for a 3-for-1 equal capital reduction. The third-party allotment rights offering planned for next year is contingent on the approval of the capital reduction, so if it is rejected, the situation will become complicated. Minority shareholders holding the majority of Asiana Airlines shares are dissatisfied with the 'equal' reduction rather than a 'differential' reduction with the existing major shareholder (Kumho Industrial). The rights offering by Korean Air next year is also a key point. The industry expects no problems with fundraising, but the ongoing impact of the novel coronavirus disease (COVID-19) remains a variable.

◆ Labor unions and civil society oppose 'restructuring and preferential treatment' = Public opinion is another mountain Korean Air and Asiana Airlines must overcome. In particular, the pilot union of Korean Air and the three major unions of Asiana Airlines are demanding a re-examination of the acquisition from scratch. Their concern is the possibility of restructuring resulting from the integration of companies in the same industry.

The company and KDB maintain that there will be no restructuring since the overlapping indirect workforce between the two companies is around 800 people, but the industry speculates that when including flight attendants, maintenance staff, and various subsidiaries, the overlapping workforce reaches several times that number, making restructuring inevitable.

Labor and management are likely to clash from the due diligence stage through the PMI process, which could take up to two to three years. Aware of this, Korean Air President Woo Ki-hong emphasized, "In its 51-year history, Korean Air has never conducted artificial restructuring and will not do so in the future. Since we have decided not to restructure personnel, we will prepare measures to maintain the workforce," adding, "We have included in the contract with KDB that subsidiaries will also not undergo workforce restructuring."

Overcoming opposition from political circles, civic groups, and consumers is also a challenge. KDB and Korean Air emphasize that this acquisition is a measure to preserve the aviation industry's ecosystem. President Woo said, "We shared the recognition with KDB that it is difficult for two airlines to survive separately in the COVID-19 era," adding, "The aviation industry ecosystem includes the two companies, subsidiaries, and partner companies, involving hundreds of thousands of people, and this acquisition aims to preserve that ecosystem."

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