With the Korea Development Bank set to inject over US$700m to further prop up its local airline industry, Korean Air has announced a take-over bid for troubled Asiana Airlines – at US$1.6bn.

Asiana has long been plagued by financial problems, prompting parent company Kumho Industrial to put its 31% stake up for sale last year as it came under pressure from its creditors. The airline is now on the brink of collapse after the withdrawal in September of HDC Hyundai Development after the airline’s debt surged due to the COVID-19 pandemic. The airline reported operating losses of 268 billion won in the first six months of this year – with its debts soaring to 11.5 trillion won.

It is reported that Hanjin KAL plans overall to raise around US$2.5bn through rights offerings early in 2021 in order to complete the financing of the take-over, which would give Korean Air a 31% stake in Asiana. The deal also includes Asiana’s affiliates, including low-cost carriers Air Seoul and Air Busan.

If the take-over deal materialises, it would reportedly create the world’s 10th-largest airline company in terms of revenue passenger kilometres. “In general, countries with a population less than 100 million have a single full-service carrier,” the airline is reported to have stated. “However, Korea has two full-service carriers, which gives it a competitive disadvantage compared to countries like Germany, France and Singapore with a single major airline.”

The main reason behind Korean Air’s decision to acquire Asiana Airlines at this time is thus, says an airline source, to “stabilise the Korean aviation industry, which is suffering from the COVID-19 pandemic”. As Korean Air’s financial status could well be endangered if the COVID-19 situation is prolonged, the restructuring of the domestic aviation market was inevitable in order to enhance its competitiveness.

It is expected the transaction will be approved before the end of the year.

Leave a Comment

Your email address will not be published. Required fields are marked *