Asiana Airlines (OZ, Seoul Incheon) state-run creditor Korea Development Bank (KDB) called on November 19 for more support for Korean Air’s planned KRW1.8 trillion won (USD1.6 billion) takeover, after activist shareholder Korea Corporate Governance Improvement (KCGI) filed a court injunction against the move.

Together with its allies, KCGI currently controls 45.24% of the voting rights in Korean Air parent Hanjin KAL (Hanjin Group), slightly above the combined shares of 43.83% of Hanjin chairman Cho Won-tae, his affiliates, and their white knight Delta Air Lines (DL, Atlanta Hartsfield Jackson).

To enact the sale, Hanjin KAL plans to raise KRW2.5 trillion (USD2.24 billion) via a rights offering early in 2021. Of the proceeds, it will spend KRW1.5 trillion (USD1.34 billion) to buy new shares to be sold by Asiana and KRW300 billion (USD269 million) worth of Asiana perpetual bonds. The KDB would buy KRW800 billion (USD716 million) of the newly-issued Hanjin KAL shares to gain a stake of around 11.9%.

KCGI objected to the KDB participating in this rights offering on the grounds that a share sale would dilute the value of stakes held by the Korean Air parent’s existing shareholders, Yonhap News Agency reported. It also protested that the plan was merely a scheme to cement chairman Cho’s control over the flag carrier.

Hanjin KAL’s board of directors had “rushed to issue new shares without any process of collecting shareholders’ opinions or even due diligence on Asiana Airlines’ financial condition,” the activist fund - which ultimately aims to replace members of the company’s founding family with professional managers - said in a statement on November 18.

Choi Dae-hyun, vice president of the KDB, admitted that the deal would have to be stopped if the court grants the injunction.

The bank’s chairman, Lee Dong-gull, highlighted on November 19, as quoted by Reuters, that the plan “is the only way for our national airline, our international aviation business, to survive.”

When labour groups also came out in opposition to the deal claiming it would lead to job losses at both airlines, Cho Won-tae told reporters on November 18 that while it was true that Korean Air and Asiana currently have redundant routes and inactive staff, it is possible to use all routes and workers if the integrated company was able to expand and diversify the business.

Asked about whether an integrated airline would sharply raise fares by using its monopolistic position, the chairman said, “There may be such concerns in the markets, but there will be no sharp increase in airfares.”