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Korean Air To Take Over Asiana Airlines

Izzat Haziq

The acquisition will make Korean Air the world’s 10th largest airline company.

The aftermath of the COVID-19 pandemic continues to spell bad business for flight carriers due to travel restrictions, wide-scale lockdowns and general paranoia of catching the infection. One of the airlines affected is Asiana Airlines, based in Seoul, South Korea. The airline had actually experienced financial problems from back in April 2019 but the pandemic escalated its crisis. After a round of sales negotiations that have fallen through, the South Korean Government has officially announced that Korean Air will be acquiring its smaller rival. Currently placed as the world’s 18th largest, this deal will secure the South Korean flag carrier’s position as the world’s 10th largest airline by fleet size.

Korean Air plans to raise 2.5 trillion won via rights offerings early next year and it will spend 1.5 trillion won to buy new shares to be sold by Asiana, including 300 billion won worth of Asiana perpetual bonds, the company said in a statement. Korean Air will acquire a 30.77 percent stake in Asiana from the debt-laden carrier's creditors led by the Korea Development Bank (KDB). The state lender plans to invest 500 billion won in shares to be issued by Hanjin KAL and 300 billion won in the company's convertible bonds.

Apart from that, Korean Air will gradually integrate three low-cost carriers, namely Korean Air’s Jin Air Co. and Asiana’s Air Busan Co. and Air Seoul Inc. after the acquisition of Asiana is completed.

"The company made the decision to help the country's airline industry continue to grow (amid uncertainties) and minimise the injection of public funds (into Asiana), " Korean Air Chairman Cho Won-tae said in the statement. The chairman also added that the company will put the job security of current employees at the two airlines above anything else under the acquisition plan.

Asiana's creditors - the KDB and the Export-Import Bank of Korea - ended a drawnout deal in September to sell Asiana to a consortium led by HDC Hyundai Development Co. over differences over terms of the deal amidst the extended COVID-19 pandemic.

The HDC-led consortium initially signed the deal to acquire Asiana from Kumho Industrial, as well as new Asiana shares to be issued and the carrier's six affiliates, for 2.5 trillion won.

However, HDC then demanded a renegotiation with Kumho and the creditors over the terms and another round of due diligence on Asiana to reflect the pandemic's impact on the airline industry. The demand was rejected by the creditors and gave an opening for Korean Air to bid for the loss-making Asiana.

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