Korean Air Chairman Cho Won-tae.

Under the megadeal, Korea Development Bank (KDB), the main credit bank of Asiana Airlines, decided to inject 800 billion won to support Hanjin KAL, the holding company of Korea Air, and finance the merger with 1.5 trillion won.

The megadeal will shift the nation’s full service carrier structure from two national flag carriers to a sole national flag carrier for the first time in 32 years.

But there are still lots of hurdles to be overcome before the successful consolidation can happen, like seeking approval from the Korea Fair Trade Commission and how to cope with opposition from shareholders and trade unions.

Government and credit bank officials said the 25th related economic ministers’ meeting designed to ramp up the competitiveness of the industries, presided over by Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki on Nov. 16, approved a plan to merge Korean Air and Asiana Airlines this year.

If Korean Air is integrated with Asiana Airlines as planned, the merged entity will rise to the 7th place in the global aviation industry.

A view of Korean Air Boeing 787-9 and Asiana Airlines A350. (Photos: Korean Air, Asiana Airlines)

An analysis of the 2020 Global Aviation Transportation Statistics, released by the International Air Transport Association (IATA), the integrated airline would place 10th in the world in terms of passenger transportation and third in terms of cargo volumes.

During the meeting, KDB will contribute 500 billion won in Hanjin KAL’s rights offerings and take over exchangeable bonds worth 300 billion to help Korean Air acquire Asiana Airlines.

KDB Chairman Lee Dong-gull said in an online message, “The integration of the two national flag carriers will be armed with the competitiveness to rise to the global top 10 global carrier.”

It is the first step being taken to restructure the Korean aviation industry, and low-cost carriers will win over a competitive edge on a gradual basis, he said. The two have three LCCs.

Korean Air plans to submit a letter of intent to acquire Asiana Airliners soon. The deal will allow Asiana Airlines and Korean Air to secure a liquidity of 1.8 trillion won and 770 billion won, respectively.

According to a detailed acquisition scenario, Korean Air will carry out rights offerings worth 2.5 trillion won and take over new shares worth 730 billion corresponding to Hanjin KAL’s stake.

Asiana Airlines will issue new shares worth 1.5 trillion won to Korean Air in a third party allocation method and issue perpetual bonds worth 300 billion won to expand its capital. Asiana Airlines had been struggling with a lack of liquidity even before the COVID-19 pandemic hit the world, and the airline was put on sale in July 2019.

The megadeal came after HDC Hyundai Development’s bid to acquire Asiana Airlines ended up in failure.

In a statement, Korean Air Chairman Cho Won-tae said his company made the decision to maintain sustainable growth of the domestic aviation industry and lessen the burden and minimize financing of public funds.

The megadeal prompted shareholders, including a shareholders’ group, led by Korea Corporate Governance Improvement (KCGI) as well as labor unions from the two airliners to put up opposition against the projected merger.