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Debt ratio, Asiana Airlines 2291%, Korean Air 1099%
Possibility of ‘destruction’ without government support
Korean Air and Asiana Airlines planes are moored on the runway of the Incheon International Airport terminal on the 15th. News 1
The merger and acquisition (M&A) between Korean Air and Asiana Airlines is maturing. There are expectations about the birth of a large national airline, but there are also concerns about the “big deal” process and the subsequent storm. In particular, some observations are raised that mergers and acquisitions among the aviation industry, which is at the center of the aftermath of the new coronavirus infection (Corona 19), will be difficult to escape the ‘winner’s curse’.
According to the industry on the 15th, the government plans to hold a meeting of ministers related to strengthening industrial competitiveness on the 16th to discuss plans to promote the ‘grand deal’ with Korean Air and Asiana Airlines. So far, the Financial Services Commission, KDB Development Bank, and Hanjin Group are reported to have discussed mergers and acquisitions between the two companies under the jurisdiction of First Deputy Minister of Strategy and Finance Kim Yong-beom. It is promising that the Korea Development Bank will invest in Hanjin Kal, a holding company of Hanjin Group, through a “three-part allocation” capital increase and acquire a 30.77% stake in Hanjin’s Asiana Airlines Kal.
If successful, the prospects are mixed, as this merger and acquisition, which will be recorded as the largest major deal in the history of the domestic aviation industry, is visible. There is a positive view that ‘the birth of an ultra-large national airline’, which is the 10th largest airline in the world with 19 trillion won in annual sales and 255 aircraft, but it is negative that both companies may fall due to debt. excessive that will take place in a situation where the outlook for the aviation industry is uncertain due to Corona 19. Airflow is also flowing. In fact, Asiana Airlines has a debt ratio of 2,291% at the end of June and a capital erosion rate of 56%. The current liabilities to be repaid within one year alone amount to KRW 4.79 trillion. Korean Air’s financial strength is also dark. The debt-to-equity ratio increased from 524.9% in 2017 to 717.1% in 2018 and 871.5% last year, and it was accounted for at 1,099.4% in the first half of this year when Corona 19 was hit That is why some point out that to maintain stable management after the end of M&A, government support must be supported on an astronomical scale. In addition, in this great business of both companies, a controversy may reappear over the injection of the blood tax. Hee-young Heo, a professor in the Department of Business Administration at Korea Aviation University, said: “After Corona 19, Korean Air, lacking financial support from the government, will probably not be able to cope with the debt of Asiana Airlines. “. If you do, you can get caught up in preferential disputes, so you must find a suitable balance point to avoid the aftermath of mergers and acquisitions. “
Korean Air-Asiana Airlines Commercial Status
The massive restructuring after the mergers and acquisitions of both companies is also a difficult task. First, it is necessary to reorganize the overlapping routes between the two companies. The government is reported to have established a policy to focus on Korean Air on long-haul routes such as the Americas and Europe, and Asiana Airlines on short- and long-haul routes such as China, Japan, and Southeast Asia. Asiana Airlines has to organize long-haul routes and Korean Air has to organize short-haul routes. As a result, the reduction in manpower for pilots and crew members is expected to be inevitable. Currently, Korean Air has 18,681 people and Asiana Airlines has 9,079 people. In response, it is known that the six unions from both companies will hold a countermeasures meeting sooner or later. At this meeting, the company plans to ask each company to share information related to mergers and acquisitions and participate in the acquisition process.
Ryu Jong-eun reporter [email protected]
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