Hanjin Group KAL (Korean Air) To Buy Asiana In $1.62 Billion Deal, Becoming World’s 10th-largest Airline

Hanjin Group owned Korean Air has just announced they will buy their rival carrier Asiana for 1.8 trillion won ($1.62 billion), a deal that will make the duo the worlds 10th largest airline.

Asiana which is majority owned by Kumho Industrial Co. has been known to be up for sale for quite some time and finances haven’t been the most solid in recent years, even well before Covid struck.

A previous deal to sell Asiana off to a consortium led by Hyundai was also abandoned as the prospective new owners came up with new demands to assess the companies accounts following Covid-19, a move that would have likely shrunk the valuation significantly.

As the Korea Herald reports today Asiana is now going to Hanjin (KAL).

Korean Air Lines Co., South Korea’s biggest carrier, said Monday that it will buy its smaller local rival Asiana Airlines Inc. in a deal valued at 1.8 trillion won ($1.62 billion) that would create the world’s 10th-biggest airline by fleets.

Korean Air plans to buy new shares worth 1.5 trillion won to be sold by Asiana, and buy bonds to be floated by the smaller carrier, the company said in a regulatory filing.

Korean Air, currently the world’s 18th largest, 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.

Hanjin KAL, the holding company of airline conglomerate Hanjin Group, is expected to submit a letter of intent to the KDB early this week to proceed with the deal.

In its broader acquisition plan, Korean Air will gradually integrate three low-cost carriers — Korean Air’s Jin Air Co. and Asiana’s Air Busan Co. and Air Seoul Inc. — after completing the acquisition of Asiana.

The majority Asiana stake is held by Kumho Industrial Co., an affiliate of airline-to-petrochemical conglomerate Kumho Asiana Group.

In September, Asiana’s creditors — the KDB and the Export-Import Bank of Korea — decided to end a drawn-out deal to sell Asiana to a consortium led by HDC Hyundai Development Co. over differences over terms of the deal amid the extended COVID-19 pandemic. …

The initial volume of the deal with Hyundai was worth 2.5 trillion won, significantly more than the new agreement with Hanjin KAL which will pay 1.8 trillion won.

Both Korean Air and Asiana face challenges stemming from the pandemic and subsequent collapse of international air travel. While there is high frequency domestic travel within Korea as well, the country is relatively small and they can’t make a lot of profit by flying between Seoul, Busan and Jeju Island.

On top of this both carriers have many large aircraft such as the Boeing 747 and Airbus A380 that have already become a liability for plenty of other carriers.

Asiana has previously scrapped First Class from their A380 and is now marketing these seats as Business Suites as selling First Class has become increasingly difficult, even in the very hierarchy prone Korean market where many top executives are still entitled to fly international First Class.

According to industry rumors surrounding this transaction KAL has signaled they want to let Asiana continue to fly under it’s own brand. It’s unclear how this will benefit the reduction of cost and the return to profitability in the long run. Asiana is a member of Star Alliance which might also be on shaky grounds as Korean Air is a long time member of the SkyTeam alliance.

Conclusion

In the past I’ve mostly been happy with Asiana, more so than with Korean Air as far as passenger experience is concerned. It remains to be seen what the plans for Asiana are in the long run.

Industry in Korea runs by it’s very own set of rules, these large companies are all owned by these influential Chaebol families that emerged after the Korean war and pretty much built South Korea as we know it today. Often said families also make for exciting drama and gossip in Korea due to scandals and infighting over power and of course money.

The powerful Hanjin Group chairman Cho Yang-ho just recently died in April of 2019. He was succeeded by his son Cho Won-tae who is the current Chairman and Chief Executive Officer of Hanjin Group and Korean Air.