Korean Air and parent company Hanjin KAL decided to acquire Asiana Airlines for 1.8 trillion won ($1.6 billion) during board meetings held on November 16, the companies said Monday. Korean Air said it plans to increase working capital by 2.5 trillion won (2.26 billion) by issuing new shares early next year.
The move, said KAL, will help stabilize South Korea’s aviation industry amid the Covid-19 crisis and help limit the need for public funds to keep both Korean Air and Asiana afloat.
“Given the crisis the airline industry is currently facing, it is unavoidable to restructure the entire market, including Korean Air, Asiana Airlines, the low-cost carriers such as Jin Air, and relevant industries,” said Hanjin KAL in a statement. “Korea Development Bank’s shares will be ordinary shares with a voting right, and Korea Development Bank will monitor and make sure Hanjin KAL and Korean Air follow through with acquisition plans.”
Korea Development Bank has agreed to invest 800 billion won ($722 million) in Hanjin—500 billion won ($451 million) by issuing new shares to the bank through a third-party allotment and 300 billion won ($271 million) through the issuance of exchangeable bonds. Hanjin KAL then will lend the 800 billion won to Korean Air immediately after receiving it, said the company.
The combination of Korean Air and Asiana Airlines will result in one of the 10 largest airlines in the world. Countries with a population less than 100 million generally cannot support two full-service carriers as South Korea has done, leaving it at what Hanjin called a competitive disadvantage compared with countries such as Germany, France, and Singapore.
“Korean Air’s acquisition and the expansion of [Asiana’s] routes, fleet, and capacity will give the airline the competitiveness to compete with global mega airlines,” said Hanjin KAL, adding that the move will also strengthen Incheon International Airport’s competitiveness as a major hub in Asia.