Korean Air (KE, Seoul Incheon) parent Hanjin KAL revealed on Friday, November 13, that it was considering the acquisition of a stake in rival Asiana Airlines (OZ, Seoul Incheon), a comment that sent debt-encumbered Asiana’s share price soaring.

Hanjin KAL told Yonhap News Agency that it planned to hold a board meeting on Monday, November 16, to discuss the issue and then within a day or two submit a letter of intent to Asiana. Asiana’s state-run creditor Korea Development Bank (KDB) confirmed that it was already considering the implications of such a deal as one of many options for the airline.

The Korean Air owner would issue new shares to buy 30.8% of Asiana held by the construction firm Kumho Industrial, local media reported. KDB would then buy the new shares and become a major shareholder in Hanjin KAL.

While Korean Air would see competition from South Korea’s only other full-service carrier fall away, it also would gain a powerful ally, Korea Development Bank, as it continues its struggle against activist shareholder Korea Corporate Governance Improvement (KCGI), local media speculated. KCGI - which insists it can improve corporate governance by replacing members of the company’s founding family with professional managers - and its allies currently hold 45.24% of the voting rights in Hanjin KAL.

“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.

For Asiana Airlines, however, it would be nothing less than salvation. It is still reeling from the collapse of a controlling stake to Hyundai Development in September and is about USD11.5 billion in debt.

Asiana has already exhausted KRW3.3 trillion won (USD3 billion) in support from the state-run bank and recently received additional support of KRW240 billion (USD216 million) from South Korea’s Key Industry Stabilisation Fund (KISF), according to local media.

Industry observers told Reuters news agency that the country’s aviation industry as a whole could also benefit from the consolidation due to oversupply on many routes. KDB may allow Korean Air to take over Asiana’s long-haul business, sources told the Korea Times.

But such a merged entity would also have control of three LCCs, namely Asiana's Air Busan (BX, Busan) and Air Seoul (RS, Seoul Incheon) and Korean Air budget affiliate Jin Air (LJ, Jeju), and the flag carrier may insist that one of them is sold.

Hanjin KAL Corporation confirmed on November 16 that it agreed to buy Asiana Airlines.

Editorial Comment: The article has been updated with Hanjin KAL's confirmation of the acquisition. - 16.11.2020 - 07:55 UTC