Will Korean Air + Asiana Become a Mega Carrier... 'Big Deal' Theory Emerges

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[Asia Economy Reporter Yoo Je-hoon] The Hanjin Group, which owns Korean Air, is rapidly emerging as a 'big deal' to acquire Asiana Airlines. As the aviation industry crisis triggered by the novel coronavirus disease (COVID-19) intensifies, the two major private airline systems that have lasted for 30 years are coming to an end.

According to business circles on the 12th, financial authorities have been reviewing this plan with related ministries and the Hanjin Group after HDC Hyundai Development Company's attempt to acquire Asiana Airlines through a merger and acquisition (M&A) failed. Industry insiders expect that the Hanjin Group will soon submit a letter of intent (LOI) to acquire Asiana Airlines.

As for the acquisition method, it is known that KDB Industrial Bank will inject funds into Hanjin KAL through a third-party allotment capital increase, and based on this, Hanjin KAL will acquire 30.77% of Asiana Airlines shares held by Kumho Industrial. It is essentially a big deal.

This big deal speculation has surfaced because the Asiana Airlines sale led by authorities such as KDB Industrial Bank ended in failure, and the aviation industry's recession due to COVID-19 has deepened. An industry insider said, "Since the late 2000s when low-cost carriers (LCCs) emerged, the aviation industry has been in an overinvestment phase, so structural reorganization was inevitable. Whenever Asiana Airlines faced difficulties, the idea of integrating the two major national carriers was raised as a concept, but this time the atmosphere is more serious."

If this deal is successful, Korean Air and Asiana Airlines are expected to rise as a mega carrier ranked in the world's top 10, with a combined fleet of about 240 aircraft. Professor Hwang Yong-sik of Sejong University said, "There are three major types of airline industry restructuring: the European style, which promotes mergers between airlines of different countries; the Japanese style, like Japan Airlines (JAL), which improves its structure through harsh restructuring; and the American style, which creates mega carriers through mergers between domestic airlines. The European style is a difficult option for us due to delicate relations with neighboring countries, and the Japanese style has its limits," adding, "The integration of the two companies is the most realistic scenario."

For Cho Won-tae, chairman of the Hanjin Group, who is undergoing a management rights dispute with the shareholder coalition (so-called three-party alliance) for the normalization of the Hanjin Group, acquiring Asiana Airlines is also seen as a turning point. If KDB Industrial Bank injects funds into the Hanjin Group through a third-party allotment, KDB Industrial Bank could emerge as the third-largest shareholder, potentially causing significant changes in the currently disadvantaged shareholding structure.

Meanwhile, KDB Industrial Bank stated regarding this big deal speculation, "We are reviewing various options, but nothing has been finalized." The Hanjin Group also said, "It is difficult to confirm."

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