Aftermath of Failed Aviation M&A... Into Legal Battles

Asiana Airlines, caught in a stalemate between HDC Hyundai Development Company and its creditors that stalled the sale process, held an extraordinary general meeting on the 15th to initiate capital expansion. On this day, Asiana Airlines convened the extraordinary general meeting at its headquarters in Gangseo-gu, Seoul, and approved an amendment to the articles of incorporation to increase the total number of issued shares and the issuance limit of convertible bonds (CB). The photo shows the Asiana Airlines headquarters where the extraordinary general meeting was held. Photo by Kim Hyun-min kimhyun81@

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[Asia Economy Reporter Yoo Je-hoon] The aviation industry is experiencing aftershocks following the collapse of mergers and acquisitions (M&A). Eastar Jet, which was a target of a 'small deal,' filed an M&A contract lawsuit against Jeju Air, and Asiana Airlines, which was a target of a 'big deal,' has filed a lawsuit regarding the deposit with HDC Hyundai Development Company.

According to the industry on the 11th, Kumho Group filed a lawsuit on the 5th against HDC Hyundai Development Company to cancel the forfeiture of the deposit. The purpose is to request the release of the pledge (collateral) set on the 250 billion KRW deposit paid to Asiana Airlines (217.7 billion KRW) and Kumho Industrial (32.3 billion KRW) for the acquisition of new and existing shares by HDC Hyundai Development Company.

HDC Hyundai Development Company, seemingly aware of this, sent an official letter to Kumho Industrial regarding the sale of Kumho Resort, stating "Do not sell without consent." This is interpreted not as a sign of remaining acquisition intent but as an effort to clarify responsibility for the termination of the stock purchase agreement (SPA) in preparation for future legal battles.

Although the situation is somewhat different, Eastar Jet also filed a lawsuit demanding the execution of stock purchase against Jeju Air, which declared the termination of the SPA. It is reported that the company is also considering filing a damages lawsuit due to the failed acquisition in the future. The aftershocks of M&A in the aviation industry have begun in earnest.

Inside and outside the industry are paying attention to the 'precedent' set by the Hanwha Group and KDB Industrial Bank's legal battle over the failed Daewoo Shipbuilding & Marine Engineering M&A in 2008. At that time, after Hanwha Group gave up the acquisition and went through intense legal battles, the Supreme Court overturned the first and second trial rulings, successfully recovering 195.1 billion KRW out of the 315 billion KRW deposit. However, there is also a forecast that future legal battles could be more intense given that the situation differs from the Asiana Airlines M&A. For example, at that time, the due diligence process could not proceed due to opposition from the Daewoo Shipbuilding & Marine Engineering labor union, whereas in the Asiana Airlines M&A, HDC Hyundai Development Company conducted seven weeks of due diligence.

The unexpected variable of the COVID-19 pandemic could also become a point of contention. Professor Hwang Yong-sik of Sejong University said, "It is common to include clauses related to Material Adverse Change (MAC) in M&A contracts, and whether COVID-19 falls under this will be a key issue," adding, "Since creditors likely proceeded with the contract meticulously keeping precedents in mind, the dispute will also be fierce."

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