Korea’s Asiana Airlines Secures Funding After Board’s Strategic Cargo Sale Decision

In a pivotal move aimed at securing regulatory approval for its impending merger with Korean Air, Asiana Airlines has sold its lucrative cargo arm, paving the way for a strategic funding infusion. Following the board’s green light on November 2, 2023, Korean Air has committed to purchasing KRW300 billion (USD229.2 million) worth of convertible bonds issued by Asiana.

The 30-year bonds, carrying an annual interest rate of 4.7%, come as part of a comprehensive funding agreement designed to alleviate Asiana’s management challenges. This move was reinforced by an immediate KRW150 billion (USD114.6 million) payment to Asiana, offering timely liquidity support.

The board’s decision to divest the profit-generating cargo arm was not without internal contention during three days of Asiana board meetings. Notably, one board member resigned ahead of the discussions, and the final vote on November 2 revealed a split within the board, with three members in favor of the cargo sale, one against, and one abstaining.

The cargo divestiture, while met with internal resistance, is a critical step toward gaining approval from the European Commission for the merger. The combined cargo operations of Asiana and Korean Air would result in a dominant 66% plus air cargo market share on routes to and from South Korea, a scenario viewed by the European Commission as potentially anti-competitive.

In response to these concerns, Korean Air promptly submitted an amended merger proposal to the European Commission, with aspirations to secure approval by the end of January 2024. The strategic sale of Asiana’s cargo arm and other concessions by Korean Air aim to address regulatory concerns not only in Europe but also in Japan and the United States, where decisions from competition authorities are expected to follow the European Commission’s ruling early next year.

A spokesperson for Korean Air emphasized the urgency of obtaining European Commission approval, stating, “We will try to get the EC’s approval as soon as possible so we can speed up the approval process of other antitrust bodies.” The unfolding developments underscore the intricate maneuvering required to navigate regulatory hurdles in the global aviation landscape.