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Asiana Airlines shares surge on potential deal with parent firm of rival Korean Air

This photo taken on April 23, 2019, shows a large model airplane in the lobby of Asiana Airlines' headquarters in Gangseo Ward, western Seoul. (Yonhap). Sketched by the Pan Pacific Agency.

SEOUL, Nov 13, 2020, Reuters. Shares in Asiana Airlines Inc soared today on prospects that the debt-ridden pandemic-hit carrier may end up sharing a home with rival Korean Air Lines Co Ltd, Malay Mail reported.

Asiana’s main creditor, the Korea Development Bank (KDB), said a deal with conglomerate Hanjin Group which owns South Korea’s biggest airline was one option it was considering.

Hanjin will submit a letter of intent to the bank as early as next week, according to the Korea Economic Daily.

For Asiana, which employs some 9,000 people and was restructuring heavily even before debt ballooned due to the coronavirus pandemic, a deal would provide a lifeline.

In return, Korean Air would see not only competition from the South Korea’s only other full service carrier fade away but also gain a valuable ally in state-run KDB as it seeks to fend off an activist shareholder from gaining control of its holding company Hanjin Kal.

According to media reports, under the deal Hanjin Kal is likely to issue new shares to purchase 30.8 per cent of Asiana held by construction company Kumho Industrial Co Ltd. KDB would then buy the new shares and become a major shareholder in Hanjin Kal.

“From Hanjin Kal’s standpoint, it could find no better ally than KDB,” said Um Kyung-a, an analyst at Shinyoung Securities.

“And if the two airlines merge, the country’s aviation industry also benefits from the consolidation as too often there has been more supply than demand,” she said.

Asiana and Kumho Industrial declined to comment. Hanjin Group said nothing has been decided.

Shares in Asiana, which is saddled with some US$11.5 billion (RM47.5 billion) in debt and saw talks with another group collapse in September due to the pandemic, jumped nearly 8 per cent, valuing it at around US$860 million.

The carrier operates 29 passenger routes and had 72 passenger aircraft of June. Prior to the pandemic it was operating 85 passenger routes.

Shares in Korean Air, however, fell almost 3 per cent while those for Hanjin Kal tumbled more than 8%.

Hanjin Kal and Korean Air have been locked in a bitter tussle since early last year with activist shareholder Korea Corporate Governance Improvement Fund (KCGI), whose camp has amassed 45.24% of the voting rights in Hanjin Kal.

KCGI argues it can improve the running of the company by installing professional managers, rather than have members of the founding family run the airline.

By comparison, Korean Air Chief Executive Walter Cho and his allies, which is believed to include Delta Air Lines, own 37.35 per cent.

“We suspect that what KDB is doing ― the provision of financial support to Hanjin Kal to acquire Asiana Airlines ― is all about helping management keep their positions intact while ignoring the rights of other shareholders,” KCGI said in a statement.

A combination of the two carriers, which together control more than 60 per cent of the international passenger routes out of South Korea, could face close scrutiny from antitrust regulators as well as a public tired of having South Korea’s family-owned groups having too much sway.

Lee Han-joon, an analyst at KTB Investment & Securities, also said Asiana might need to find other buyers for two budget carriers, Air Busan and Air Seoul, as Korean Air has its own budget affiliate Jin Air.

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