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Seoul: South Korean flag carrier Korean Air said on Monday (Nov 16) that it will buy its smaller and troubled rival Asiana Airlines in a $ 1.6 billion deal as it seeks to consolidate with the global aviation sector. devastated by the COVID-19 pandemic.
The deal combining South Korea’s two largest airlines comes at a time when airlines around the world are struggling with low demand, bleeding cash and planes on the ground to survive.
“The main reason behind Korean Air’s decision to acquire Asiana Airlines at this time is to stabilize the Korean aviation industry, which is suffering from the COVID-19 pandemic,” Korean Air said in a statement.
“Once Korean Air completes its acquisition of Asiana Airlines, the airline is expected to rank as one of the top 10 airlines in the world.”
READ: Comment: The new coronavirus turns 2020 a gloomy year for Asian airlines
Korean Air said it would pay 1.8 trillion won ($ 1.6 billion) for Asiana, using cash from a 2.5 trillion won rights issue early next year. The deal also includes Asiana’s subsidiaries, including low-cost airlines Air Seoul and Air Busan.
“Considering that Korean Air’s financial status could also be in jeopardy if the COVID-19 situation continues, it is inevitable to restructure the domestic aviation market to improve its competitiveness,” Korean Air added.
Asiana has long been plagued with financial problems, prompting parent company Kumho Industrial to put its 31 percent stake up for sale last year due to pressure from its creditors.
An earlier deal for South Korean builder HDC Hyundai Developer to buy Asiana collapsed in September when the pandemic swept through the aviation industry.
Asiana reported operating losses of 268 billion won in the first six months of this year, and its debts soared to 11.5 billion won.
But Korean Air and its parent company Hanjin Group hope that the Asiana acquisition will increase their competitiveness in the global market.
“In general, countries with a population of less than 100 million have a single full-service airline,” they said in a statement.
“However, Korea has two full service airlines, which gives it a competitive disadvantage compared to countries like Germany, France and Singapore with only one major airline.”
READ: South Korean constructor takes control of Asiana Airlines for US $ 2.2 billion
The Asiana deal “will give the airline the competitiveness to compete with the global mega airlines.”
South Korea’s Yonhap news agency reported that the country’s Transportation Ministry and Asiana’s creditors, including the Korean State Development Bank, viewed the deal as “inevitable” to avoid further losses during the pandemic.
The deal also involves an investment from the Korean Development Bank, which said it hopes to get regulatory approvals by the end of next year, according to Bloomberg News.
State-owned KDB said early Monday that it expects to complete the transactions this year and seek approval from antitrust bodies globally by the end of 2021.
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