The flag carrier of South Korea, Korean Air, is set to spend $1.62 billion to become the top shareholder of the rival Asiana Airlines.
If carried through, it would be the biggest airline merger since the beginning of the pandemic. Asiana’s integration into Korean Air would create a national carrier operating around 60% of international routes. This consolidation could help both airlines to create a competitive advantage against other airlines.
“The main reason behind Korean Air’s decision to acquire Asiana Airlines at this time is to stabilize the Korean aviation industry, which is suffering from the Covid-19 pandemic,” Korean Air spokesperson said in a statement.
Asiana Airlines suffered a financial crisis in April 2019. Kumho Asiana Group, the major shareholder of the airline, decided to sell off its stake of almost 34% to avert Asiana’s liquidity crisis. The airline already used up $2.9 billion that it had previously secured from the state-owned banks. In September 2020, the airline received additional government-backed support worth $216 million from creditors led by the Korea Development Bank (KDB).
Korean Air will purchase 1.5 trillion won ($1.35 billion) worth of Asiana shares and 300 billion won ($270 million) worth of Asiana’s convertible bonds. KDB will lead the deal and will also invest 800 billion won ($722 million) in Korean Air’s parent company, Hanjin KAL.
“We expect the transaction and process to be finalized by the second half of 2021,” Asiana Airlines Chief Executive Han Chang-soo wrote in a letter to employees on November 16, 2020.
With the merger of two companies, up to 1,000 roles could overlap. Korean Air Chairman Cho Won-tae said the company would ensure the job security of current employees at the two airlines.
“For the time being, Korean Air and Asiana will operate as independent affiliates, but once integrated, Asiana’s brand will be phased out,” a Korean Air spokeswoman told Reuters.
As a result of the completed acquisition Korean Air would become Asiana’s biggest shareholder with a 63.9 % stake. Eventually the airline is planning to integrate three low-cost carriers: Korean Air’s Jin Air, Asiana’s Air Busan and Air Seoul. That would make Korean Air the 15th largest airline in the world, according to 2019 data from the International Air Transport Association (IATA).
On November 16, 2020, according to the Korea Composite Stock Price Index (KOSP), Asiana’s share got a boost of 29.8% while Korean Air’s rose 20%.