Hanjin Group owned Korean Air announced in November that they’ll 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 but the merger completion has now been postponed to 2024 due to regulatory concerns.
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.
According to an article in The Korea Times today the transaction between Hanjin KAL and Asiana’s owners ran into regulatory roadblocks causing the merger to be delayed until 2024.
Korean Air Co., South Korea’s largest airline, said Wednesday it plans to launch a merged entity with its smaller rival Asiana Airlines Ltd. in 2024 after completing a takeover process next year.
Korean Air, which announced plans to acquire the debt-ridden Asiana for 1.8 trillion won (US$1.6 billion) in November, has submitted a post-merger integration plan to the state-run Korea Development Bank (KDB), Asiana’s main creditor.
Although Korean Air initially planned to finalize the deal within this year, it delayed the schedule due to regulatory review processes. It has received the first approval from Turkey and still needs nods from eight other countries, including South Korea, the United States, China and Japan.
“We are working closely with consulting companies in each country to complete the approval process by the end of the year,” Korean Air President Woo Kee-hong said in an online press briefing. “Korean Air plans to fully integrate with Asiana Airlines about two years after (the acquisition).“
Once the merger is finalized, Hanjin KAL will serve as a holding company for Korean Air, which in turn controls Asiana Airlines, Woo said. …Although Korean Air does not plan to lay off Asiana employees following the acquisition, Woo said the company will reorganize redundant subsidiaries and their workforces, streamline flight schedule and mull ways to combine the two airlines’ low-cost carriers.
The CEO said the global airline industry is expected to show a full recovery after 2022, noting the company will sell non-core assets and continue cost-cutting efforts to tide over the industry slump triggered by the COVID-19 pandemic.
“After we integrate and are fully recovered from the impact of COVID-19, we estimate a synergy effect of around 300 to 400 billion won per year,” Woo said. “However, as integration requires considerable costs, we expect it to take about two years to reach a break-even point.”
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. Korea has also discontinued the visa waiver program for most countries and it’s strict quarantine regime now goes into it’s first full year.
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.
According to previous industry rumors surrounding this transaction KAL has signaled they want to let Asiana continue to fly under it’s own brand. According to yesterdays news conference this was no longer the case.
It’d be unclear how letting both airlines run on their own 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. All signals now show that the Asiana brand will disappear.
This would have implications on Asiana’s frequent flyer program Asiana Club as well. For one, the program will cease to exist and most likely accounts will be integrated into SKYPASS, the program of Korean Air. If miles would be transferred 1:1 depends on the interpretation and valuation of the carriers management and loyalty departments.
One issue that will undoubtedly arise is that of the Lifetime Status Members. It is relatively easy to earn Lifetime Status with Asiana Club (500,000 miles accrued or 500 flights with Asiana Airlines for Lifetime Diamond Plus, [1,000,000 miles accrued or 1000 flights with Asiana] for Lifetime Platinum) while for the Million Miler Club of Korean Air one needs to fly an actual one million miles.
That airlines who absorb another frequent flyer program also honor the lifetime members is rare. It remains to be seen what will happen to them in this merger situation. Maybe the Platinum members have a better shot in getting their lifetime status honored.
Conclusion
The final completion of the KE/OZ merger will now take at least another 3 years so I guess that’s good news for those who like to have a choice between the two carriers when flying to/from/via Korea. It’ll also help to burn off mileage from frequent flyer accounts as long as there is additional capacity.
If you’re an Asiana Club frequent flyer who values Star Alliance Status I’d consider to find a new home in the years to come, although be prepared for it’s use to be limited if Seoul will no longer be a Star Alliance hub. Mind you, in the past Star Alliance has always run a campaign to offer existing Gold members a status match into a new program of participating airlines when a carrier ceased to exist either due to bankruptcy or merger.
