Hanjin KAL and Korean Air today confirmed that a
decision has been made to acquire Asiana Airlines.
Korean Air plans to acquire Asiana Airlines
at KRW 1.8 trillion. In order to secure this amount, Korean Air
plans to increase KRW 2.5 trillion worth of capital by issuing new
shares early next year.
According to the agreement with Korea
Development Bank, Hanjin KAL will receive a KRW 800-billion
investment from Korea Development Bank — KRW 500 billion by
issuing new shares to the bank through a third-party allotment and
KRW 300 billion through the issuing of exchangeable bonds. Hanjin
KAL will lend this KRW 800 billion to Korean Air immediately after
receiving it from the bank in order to support both airlines
before Korean Air’s capital increase.
Of the KRW 800
billion from Hanjin KAL, Korean Air will invest KRW 300 billion to
acquire perpetual convertible bonds from Asiana Airlines and use
an additional KRW 300 billion as a down payment for the KRW
1.5-trillion contract to acquire Asiana Airlines’ new shares.
Korean Air’s initial investment will enable Asiana Airlines to
secure the funding needed for operations until the end of the
year, as well as improve its financial position by adding KRW 300
billion worth of perpetual convertible bonds to its capital
The reason for Korea Development Bank’s investment
in Korean Air through Hanjin KAL is to ensure Hanjin KAL maintains
its status as the airline’s holding company.
decided to receive Korea Development Bank’s investment by issuing
new shares, rather than borrowing the entire KRW 800 billion from
the bank, to maintain a stable financial structure. It also chose
the third-party allotment method to secure the capital quickly and
Given the crisis the airline industry is
currently facing, it is unavoidable to restructure the entire
market, including Korean Air, Asiana Airlines, the low cost
carriers such as Jin Air, and relevant industries. Korea
Development Bank’s shares will be ordinary shares with a voting
right, and Korea Development Bank will monitor and make sure Hanjin KAL and Korean Air follow through with acquisition plans.
In general, countries with a population less than 100
million have a single full service carrier. However, Korea has two
full service carriers, which gives it a competitive disadvantage
compared to countries like Germany, France and Singapore with a
single major airline. However, Korean Air’s acquisition and the
expansion of its routes, fleet and capacity will give the airline
the competitiveness to compete with global mega airlines.
The merger of the two airlines is expected to further enhance the
competitiveness of the Korean aviation industry with more
streamlined route operations and lower costs. More slots secured
at Incheon International Airport, a transport hub in Asia, through
the consolidation of the airlines, may lead to an increase in
joint ventures with global airlines and greater transfer demand,
which will also spur the growth of the domestic aviation industry.
Korean Air completes its acquisition of Asiana Airlines, the
airline is expected to be ranked as one of the top 10 airlines in
Hong Kong – Singapore Air Travel Bubble Suspended at Last Minute