Korean Air plans to buy Asiana Airlines
Korean Air intends to acquire Asiana Airlines in a deal that’s valued at $1.6 billion, which should be finalized in the second half of 2021. Korean Air is currently the world’s 18th largest airline, and if this deal is complete, the combined airline would become the 10th largest in the world.
Here’s the plan for the takeover, which is quite complicated due to the ownership structures of the companies:
- Korean Air plans to raise ~$2.25 billion via rights offerings in early 2021
- Of that money, ~$1.35 billion will be spent to buy new shares to be sold to Asiana, and the balance will be spent on Asiana perpetual bonds
- Korean Development Bank, the main creditor of Asiana Airlines, will inject ~$722 million into Hanjin KAL, through a rights offering and convertible bonds; in other words, both former parent companies would still have a stake in the combined airline
As Korean Air Chairman Cho Won-tae describes this takeover:
“The company made the decision to help the country’s airline industry continue to grow (amid uncertainties) and minimize the injection of public funds (into Asiana).”
Meanwhile the Deputy Minister for Civil Aviation at the Ministry of Land, Infrastructure, and Transport, has said that this was an “inevitable decision” in order to minimize losses at the two airlines amid the pandemic.
Now, I’d note that while the plans seem concrete as of now, only time will tell if this merger actually goes through, since a lot can still go wrong — will the shareholders ultimately be onboard, and will the deal receive regulatory approval?
Why Korea’s two major airlines have struggled
The truth is that the financial situation at Korean Air and Asiana Airlines has been problematic since long before the pandemic. South Korea has a population of around 50 million, and the country has two full service airlines, making it one of the few countries of its size with two full service airlines.
That doesn’t even begin to address all the competition in South Korea from both foreign airlines and low cost carriers.
This deal is probably particularly beneficial for Asiana, which has been on the brink of collapse. In September the airline received a cash injection from creditors (led by Korean Development Bank), after the previous largest shareholder pulled out of a sale.