MIAMI – Korean Air Lines (KE) will continue the deal to buy its smaller local competitor Asiana Airlines (OZ) without job cuts, the chairman of the group said Wednesday.
“The company made a decision to acquire (Asiana Airlines) to make a contribution to the development of the country’s airline industry,” Korean Air Chairman Cho Won-tae told reporters after attending a South Korea-U.S. business leaders’ meeting in Seoul.
The Chairman added that while there were redundant routes and staff for both carriers, if an integrated company extended routes and diversified industry, it was possible to use all the routes and staff.
In the press conference, Won-tae denied claims that the government had granted the transaction a special favor. According to Yonhap News Agency, the chairman said the state-run Korea Development Bank (KDB), the main creditor of Asiana, first asked him if he had an interest in acquiring Asiana and Won-tae “said yes. We met several times to initiate the deal.”
An ₩800bn Investment in Asiana
His remarks came a day after the KDB signed an agreement to inject ₩800bn (US$723m) into the parent firm through a rights offering and convertible bonds with Hanjin KAL Corp., the owner of KE. Hanjin KAL will then participate in the carrier’s stock sale of ₩2.5tn, which will be used to acquire Asiana.
Through rights offers, KE plans to collect ₩2.5tn early next year. Of the proceeds, ₩1.5tn will be spent on the acquisition of new shares to be sold by Asiana and ₩300bn on perpetual bonds from OZ.
After investing ₩800bn in the holding company, KDB will have a 10.66% stake in Hanjin KAL and is generally expected to assist Chairman Cho and his associated parties in defending offensives against an activist fund attempting to gain control of its stake in Hanjin KAL.
Clearing Fears of a Monopoly
The chairman also serves as chairman of Hanjin KAL, the airline conglomerate Hanjin Group’s holding company. South Korea’s antitrust regulator will review the deal over the issue of monopoly. If things go smoothly, the deal is expected to be completed by June next year.
Asked about the possibility that the integrated airline will sharply raise airfares using its monopolistic position after the acquisition, the chairman said, “There may be such concerns in the markets but there will be no sharp increase in airfares.”
The majority 30.77 percent stake in Asiana is currently held by Kumho Industrial Co., an affiliate of airline-to-petrochemical conglomerate Kumho Asiana Group. Korean Air, currently the world’s 18th-largest airline by fleet, will become OZ’s biggest shareholder with a 63.9% stake if the acquisition is completed. It will also acquire OZ’s ₩22.46tn debt on assets worth ₩25.51.
Featured image: Cho Won-tae, president of Korean Air Lines. Photo: Reuters