South Korea’s two biggest airlines plan to merge, with Korean Air Lines Co acquiring Asiana Airlines Inc for 1.8 trillion won (US$1.6 billion) following an injection via its parent, Hanjin Kal Corp.
The main goal of the acquisition is to stabilize South Korea’s aviation industry amid the COVID-19 pandemic and improve its competitiveness, said Hanjin Group, which operates airlines and logistics businesses through its subsidiaries.
It expects Korean Air to be ranked as one of the world’s top 10 airlines once the deal is completed.
“In general, countries with a population less than 100 million have a single full-service carrier,” Hanjin said in a statement.
“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,” it said.
The merger should streamline route operations and reduce costs, while the consolidation of slots at Seoul’s Incheon International Airport might increase joint ventures with global airlines and demand for transit flights, the parent company said.
That should also spur growth in the domestic aviation industry.
“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,” Hanjin said.
Shares in Asiana and Korean Air both soared on the stock exchange yesterday, with Asiana rising by the 30 percent daily limit and Korean Air climbing as much as 18 percent. The two are trading above where they were at the start of the pandemic in January.
Hanjin Kal rose as much as 6.6 percent yesterday.
Korean Air plans to issue new shares early next year to raise 2.5 trillion won. Hanjin Kal is to participate in the issue after receiving 800 billion won from Korea Development Bank, which it would transfer to Korean Air.
The airline is to invest 300 billion won of that to buy perpetual convertible bonds from Asiana and another 300 billion won as a down payment on a 1.5 trillion won contract to buy new Asiana shares, according to the statement.
“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 300 billion won worth of perpetual convertible bonds to its capital assets,” Hanjin said.
State-run Korea Development Bank yesterday said that it hopes to complete the transactions this year and seek approvals from antitrust bodies globally by the end of next year.
The bank would likely own about 10 percent of Hanjin Kal, Hanjin Group has said.
Founded in 1988 to compete with Korean Air, Asiana flew to 61 cities in 21 countries prior to the pandemic. It has two budget carriers, Air Seoul and Air Busan.
Korea Development Bank said Hanjin might look at consolidating low-cost carriers after the Asiana acquisition.
Hanjin Kal is the parent of budget operator Jin Air Co.
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