Korean Air parent mulls buying stake in Asiana Airlines

Korean Air (KE, Seoul Incheon) parent Hanjin KAL revealed on Friday, November 13, that it was considering the acquisition of a stake in rival Asiana Airlines (OZ, Seoul Incheon), a comment that sent debt-encumbered Asiana’s share price soaring. Hanjin KAL told Yonhap News Agency that it planned to hold a board meeting on Monday, November 16, to discuss the issue and then within a day or two submit a letter of intent to Asiana. Asiana’s state-run creditor Korea Development Bank (KDB) confirmed that it was already considering the implications of such a deal as one of many options for the airline. The Korean Air owner would issue new shares to buy 30.8% of Asiana held by the construction firm Kumho Industrial, local media reported. KDB would then buy the new shares and become a major shareholder in Hanjin KAL. While Korean Air would see competition from South Korea’s only other full-service carrier fall away, it also would gain a powerful ally, Korea Development Bank, as it continues its struggle against activist shareholder Korea Corporate Governance Improvement (KCGI), local media speculated. KCGI – which insists it can improve corporate governance by replacing members of the company’s founding family with professional managers – and its allies currently hold 45.24% of the voting rights in Hanjin KAL. “We suspect that what KDB is doing – the provision of financial support to Hanjin KAL to acquire Asiana Airlines – is all about helping management keep their positions intact while ignoring the rights of other shareholders,” KCGI said in a statement. For Asiana Airlines, however, it would be nothing less than salvation. It is still reeling from the collapse of a controlling stake to Hyundai Development in September and is about USD11.5 billion in debt. Asiana has already exhausted KRW3.3 trillion won (USD3 billion) in support from the state-run bank and recently received additional support of KRW240 billion (USD216 million) from South Korea’s Key Industry Stabilisation Fund (KISF), according to local media.