(Dec 1): South Korea’s bid to restructure its airline industry was given the green light after a court cleared a crucial step in Korean Air Lines Co.’s plan to buy smaller rival Asiana Airlines Inc.
The Seoul Central District Court on Tuesday rejected a request to halt a sale of new shares by Korean Air’s parent to state-run Korea Development Bank, a stock issue designed to enable the takeover. The ruling clears the path for the biggest reorganization in South Korea’s airline industry.
Airlines have been making record losses this year as travel was all but wiped out after governments closed borders to contain the spread of the coronavirus. Carriers are cutting jobs, selling non-core assets and reducing their networks, with the International Air Transport Association predicting that travel won’t recover to pre-Covid levels until 2024.
Korea Development Bank, the main creditor of struggling airline Asiana, said last month that the planned combination of Korean Air and Asiana could collapse if the court rules against the share sale. An unfavorable ruling would have meant that creditors would have to take over Asiana and inject more capital to prevent it from a collapse.
The case against the share sale was filed by an alliance of three big holders of Korean Air parent Hanjin Kal Corp., who argued that the stock placement would dilute their stakes and boost Chairman Walter Cho’s sway over the holding company. The alliance, which includes Cho’s sister, is at odds with the chairman and failed with an attempt to oust him this year.
“The decision for the new share sale was made on the purpose of acquiring and merging Asiana,” the court said in its ruling. “The court also doesn’t believe Korea Development Bank buying shares in Hanjin Kal will change the shareholding structure as the alliance suggests.”
Korean Air and Hanjin respect the court’s decision and will do their best to overcome the current difficult situation, they said in a statement.
Heather Cho, the older sister of Walter and best known for the 2014 “nut rage” incident, joined hands with local shareholder activist Korea Corporate Governance Improvement fund and unlisted builder Bando in a bid to put in new management for Hanjin Kal. They own 45.2% of Hanjin Kal combined.
The alliance wants Hanjin Kal to focus on its main businesses and sell non-core operations. In response, Hanjin Kal and Korean Air have announced steps to ensure more transparencies in its management and sell units that aren’t essential for the company.
The planned 1.8 trillion won ($1.6 billion) acquisition of Asiana by Korean Air, announced last month, is an attempt by Hanjin to stabilize South Korea’s aviation industry amid the pandemic. The parent said it expected Korean Air to be ranked as one of the world’s top 10 airlines once the deal is completed.
The attempted deal comes after Kumho Industrial Co. failed in September to sell its entire stake in Asiana to HDC Hyundai Development Co. In July, South Korea’s biggest budget carrier Jeju Air Co. dropped plans to buy Eastar Jet.
Heather Cho gained notoriety six years ago -- and spent five months in jail -- after she forced a Korean Air plane to return to the gate in New York because she was angry over the way she’d been served macadamia nuts. The incident spawned the label “nut rage” and made headlines around the world.