Asiana Board Meeting Postponed... The Later the Merger, the Harder to Survive

Asiana's Financial Condition Worsens with Increasing Losses
Debt Ratio at 2097.5% · Current Ratio at 49.3%
High Debt but Insufficient Ability to Repay Immediately
Remaining Cash Approximately 120 Billion KRW
Outside Director 'Conflict of Interest' Dispute Biggest Variable in Board Meeting

Asiana Airlines failed to reach a conclusion on the sale of its cargo business division and other merger-related matters at the board meeting held on the 30th, and will reconvene the board on the 2nd to continue discussions. As a result, Korean Air's submission of remedies to address monopoly concerns to the European Union (EU) competition authorities has been delayed, causing the merger 'clock' to come to a halt. Given Asiana Airlines' poor financial condition, the longer the merger is delayed, the greater the losses are expected to be.

Asiana Airlines' debt ratio, which was 1386.7% in 2019, soared to 2097.5% in the first half of this year. The debt ratio indicates the proportion of a company's assets that are financed by debt. Regarding the increase in the debt ratio this year, Asiana Airlines explained, "Last year, the debt ratio was somewhat lower because we steadily repaid borrowings based on improved business conditions."

Asiana Airlines headquarters in Osoe-dong, Gangseo-gu.
Photo by Yongjun Cho jun21@

There is a large amount of debt that must be repaid immediately, but the ability to repay is insufficient. The current ratio, which measures the ability to repay short-term debt, was only 49.3% in the first half of this year. The current ratio is calculated by dividing current assets by current liabilities and multiplying by 100. Current assets refer to cash or assets that can be quickly converted into cash, such as deposits and stocks. Current liabilities are debts that must be repaid within one year.

Generally, a current ratio above 200% for four consecutive years is considered indicative of good financial health. In other words, Asiana Airlines can only cover 50% of its debts due within a year, indicating weakened cash mobilization capacity. The company's current ratio was 34.2% in 2019 and has remained in the 40% range since then.

Even the limited cash reserves are drying up. As of the first half of this year, Asiana held 1.0599 trillion won in cash. However, in July, it repaid 700 billion won of the remaining special agreement support funds of 2.556 trillion won borrowed from the Korea Development Bank and the Export-Import Bank of Korea. On the 21st, it also repaid a 240 billion won loan from the Industrial Stabilization Fund lent by the Korea Development Bank, which matured. In reality, the remaining cash is only 119.9 billion won. Additionally, there is still 21 billion won borrowed from Busan Bank.

Regarding the special agreement support funds, the maturity was changed from one year to three months starting January this year. Instead of repaying annually, repayment must now be made every three months. Asiana explained this change as "to regularly discuss financial improvements through increased travel demand and to respond more flexibly to exchange rate and interest rate fluctuations caused by domestic and international variables." However, maturity extensions are possible. After repaying in July, the three-month maturity that came due on the 27th of last month was extended again.

In the aviation industry, it is believed that Korean Air resolved at its board meeting on the 30th to expand the use of the 700 billion won it transferred to Asiana as support. At that time, Korean Air signed a contract for the merger and provided Asiana with 700 billion won as a deposit and interim payment. The deposit of 300 billion won was received by Asiana in December 2020, and the remaining amount in March 2021. However, this amount is held as a deposit (temporarily held funds), with restricted usage, so it cannot be used immediately.

Korean Air Seosomun Building.
Photo by Jo Yongjun jun21@

Meanwhile, the reason Asiana Airlines' board failed to reach a conclusion on the merger, including the sale of the cargo business, on the 30th is reported to be due to controversy over the participation of outside director Yoon Chang-beon, a legal advisor at Kim & Chang law firm, in the vote. Kim & Chang is advising Korean Air during the merger process of the two companies. The debate arose because Yoon, as a director with a special interest, should not have participated in the board vote.

Yoon, who was abroad, attended the meeting online but left during the session and then rejoined. Some directors opposing the sale of the cargo business objected to his re-entry, causing controversy. According to Asiana's board regulations, online attendance and re-entry are allowed and are not considered problematic.

Korean Air needs Asiana's board decision to submit remedial measures to the EU Commission. Based on legal advice stating there is no conflict of interest related to Director Yoon, Korean Air is expected to persuade the directors who opposed the vote.

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