Court clears hurdle for Korean Air-Asiana merger; LCCs fret

An attempt to derail the planned merger of Korean Air (KE, Seoul Incheon) and Asiana Airlines (OZ, Seoul Incheon) lost its legal momentum on December 1 as the Seoul Central District Court dismissed an injunction filed against the coupling, Yonhap News Agency reported. Korea Corporate Governance Improvement (KCGI), one of the shareholders in the flag carrier’s parent Hanjin KAL (Hanjin Group), filed the injunction two weeks ago as it objected to Korea Development Bank (KDB), a state-run creditor of Asiana, participating in a rights offering to enact the move. It would dilute the value of stakes held by Hanjin KAL shareholders, it argued. KCGI also protested that the plan was simply a ruse to cement the control of Hanjin KAL chairman Cho Won-tae and his family over Korean Air. “The planned rights issue appears to be in line with Hanjin Group’s plan to acquire Asiana and operate an integrated airline, not aimed at protecting the current Hanjin management’s control of the group,” the court said in its ruling. However, the deal still requires approval from antitrust authorities in at least four other territories, according to Korea’s Fair Trade Commission, namely the United States, the European Union, China, and Japan. Korean Air revealed in November that it would raise KRW2.5 trillion won (USD2.26 billion) via a rights offering early in 2021, of which KRW800 billion (USD723 million) would be sold to the KDB. From the proceeds, it would spend KRW1.8 trillion (USD1.6 billion) to acquire Asiana including KRW1.5 trillion (USD1.35 billion) on new shares to be sold by its smaller rival and KRW300 billion (USD270 million) on Asiana perpetual bonds. The result would create the world’s tenth-biggest airline by fleet. Under an agreement the KDB and Hanjin KAL signed in November, chairman Cho agreed to provide all of his own 6.52% stake in the Korean Air parent, valued at KRW170 billion (USD154 million), as security to creditors, Yonhap reported. The KDB said that as a consequence, it now has the right to sell this stake – and force Cho to step down as chairman – if the newly combined entity fails to meet performance expectations. In an online press conference on November 23, Lee Dong-gull, chairman of the KDB, said he estimated that Korean Air’s planned acquisition of Asiana could lead to an annual profit of KRW300 billion (USD270 million) in the post-pandemic era within two to three years if the combined company restructures in a way that streamlines routes and cuts maintenance costs, the Korea Herald reported. Meanwhile, the consequences of the planned merger are becoming apparent for the full-service carriers’ LCCs, Korean Air’s Jin Air (LJ, Jeju) and Asiana’s low-cost units, Air Busan (BX, Busan) and Air Seoul (RS, Seoul Incheon), explicitly concerning their integration and where such a combined low-cost entity’s headquarters should be located, according to local media.