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Controversy Over Use Of Blood Tax If FTC Approves Combination
KCGI also objects to Hanjin Kal’s third-party legacy
Korean Air and Asiana Airlines planes are next to each other on the apron at Incheon International Airport. Photo = Yonhap News
Announcement of the acquisition of Asiana Airlines by Hanjin Group, which owns Korean Air, is expected to come out earlier this week.
According to the financial sector, on the 15th, the government held a meeting of related ministers (Sankyungjang) to strengthen industrial competitiveness on the 16th to discuss ways to normalize Asiana Airlines. The main agenda is the question of the acquisition of Asiana Airlines by Hanjin Group.
It is discussed how the Korea Development Bank invests funds in Hanjin Kal, which sits at the top of the Hanjin Group governance structure, through a paid-in capital increase, and Hanjin Kal buys a stake (30.77 %) of Asiana Airlines owned by Kumho Industrial. In fact, KDB participates as a financial investor, reducing the burden of the Hanjin Kal acquisition.
A plan to create a separate corporation by separating the MRO (maintenance) organizations of Korean Air and Asiana Airlines is also analyzed as a scenario.
Korean Air’s acquisition of Asiana Airlines is known as a Korea Bank idea. It is an alternative that emerged after considering the normalization plan after the failure of the acquisition of Asiana Airlines by HDC Hyundai Industrial Development in September.
The protracted outbreak of coronavirus (Corona 19) has brought the aviation industry to the brink of a cliff, and the perception that the government continues to support two major airlines appears to have worked.
Asiana Airlines used 3.30 trillion won backed by the Korea Development Bank and the Export-Import Bank and received additional support of 240 billion won from the Basic Industry Stability Fund. Korean Air also received 1.2 trillion won in support of Sang-Gil and Mercury in April this year, and an application for the Basic Industry Stability Fund was also announced.
Given that the outlook for the aviation industry is uncertain, the plan to merge the two major airlines is said to have gained sympathy within the government. In this regard, Gyu-sang Doh, vice chairman of the Financial Services Commission, said on the 13th: “If it is a good way to talk about it in a very common sense, there is no reason to refuse as a government.”
One government official said, “(Asiana Airlines) has a great feeling that there is no answer except for Korean Air actually,” and another official said, “There will be an announcement after the summit on the 16th.” The subject of the announcement is expected to be the government or the KDB.
It is also reported that Hanjin Kal, the holding company of Hanjin Group, will hold a board of directors to discuss the issue of the Asiana Airlines acquisition.
However, there are not many mountains to cross. It must be approved by the Fair Trade Commission, and a backlash is also expected from the union, which is concerned about large-scale restructuring. In particular, controversy is expected over the use of blood taxes on the issue of the approval of business combinations by the FTC.
If the FTC has approved the merger between Jeju Air and Eastar Jet, and if Asiana Airlines is considered to be a non-renewable company, it may allow a combination with Korean Air. In this case, the KDB will provide additional funds for companies that the government has determined are impossible to recover.
Another variable is the opposition of KCGI, an activist private equity fund (PEF), which has established a corner with President Cho Won-tae on the management of Hanjin Group, against the acquisition of Asiana Airlines. KCGI said in a press release that day, “Saneun expresses strong opposition to the increase in Hanjin Kal’s assignment to a third party.”
The shareholders association said: “If the purpose is to strengthen the competitiveness of the aviation industry, you can apply to Korean Air.” Hanjin Kal’s capital increase, a normal company with a debt ratio of only 108%, is clearly destined to become a friendly stake in Cho Won-tae and the existing management. It has no choice but to be interpreted as ”, he stressed.
He said: “However, if Hanjin Kal implements a paid-in capital increase, our coalition of shareholders, the main existing shareholder, will participate first in terms of responsible management, rather than assigning a third party who wastes people’s blood.”
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