Korean Air In Talks To Takeover Asiana

Talks are being held in Seoul about a possible takeover of Asiana by its much bigger domestic rival of Korean Air.

The sale of Asiana from Kumho, a Korean conglomerate, to Hyundai Development Company, another conglomerate, collapsed in September. Korean Development Bank has explored other solutions for Asiana ever since.

Here’s an excerpt from the Nikkei Asia:

Shares of Asiana Airlines rose sharply on Friday on expectations that the South Korean government will sell the troubled full-service carrier to its larger rival in a deal that would inject taxpayer money into both airlines.

State-run lender Korea Development Bank said on Thursday evening that Asiana could be sold to Hanjin KAL, the holding company of Korean Air.

News of the possible salvage deal comes a few months after a $2.2 billion acquisition deal between Kumho Industrial, Asiana’s parent, and Hyundai Development Company collapsed. HDC, a mid-sized builder, gave up on buying Asiana in September as the coronavirus pandemic devastated the airline industry. Korea Development Bank, a main creditor of Kumho, has been looking for a Plan B since then.

And from Reuters:

Hanjin Kal 180640.KS said on Friday that it is considering buying a stake in Asiana, while Asiana’s state-run creditor said the deal was one of the options it was considering.

Hanjin Kal is expected to hold a board meeting on Monday and submit a letter of intent to Asiana early next week, Yonhap News Agency said.

A deal would provide a lifeline for Asiana, which employs some 9,000 people and was restructuring heavily even before debt ballooned due to the coronavirus pandemic.

Conclusion

It is somewhat unclear what is taking place here. Does this possible takeover benefit either Korean Air or Asiana?

It could be that Hanjin KAL is trying to dilute the share that an activist investor holds at the company with the help of the Korean government (not good). The investor has argued that Korea Air should have competent management running the airline instead of family members (remember that nut lady incident?).

If Korean Air is allowed to take over Asiana, it would likely mean the airline’s end and competition gone between many routes to/from and within Korea (not good for the consumers). Antitrust authorities may torpedo the possible takeover.

Korean Air is a SkyTeam member while Asiana is part of Star Alliance. I would assume that, if the purchase goes through, Korean Air won’t move from SkyTeam to Star, although the latter is a better alliance.