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An Asiana A380 in Seoul (Photo: AirlineGeeks | Ben Suskind)

Aviation-Centered Mergers and Acquisition in South Korea Slow to a Halt

With COVID-19 raging throughout the world, the aviation industry has experienced its longest battle in decades. In South Korea, mergers and acquisitions have halted since the pandemic began, a development that has proven particularly impactful for the aviation industry and those looking to take part in it.

HDC Hyundai Development Company (HDC) inked a deal to acquire a nearly 31% stake in Asiana Airlines from Kumho Asiana Group in December, a transaction that was expected to complete by Jun 27. Earlier this month, Korea Development Bank, the creditor of Asiana Airlines, has urged HDC to complete the deal.

The weakened travel demand amid the pandemic has pushed Asiana into heavy debt. As of May, HDC revealed the debt of Asiana increased by $3.76 billion and that the airline’s debt ratio in the first quarter of the year was 6,280%. But the airline rejected HDC’s announcement.

HDC has renegotiated with Asiana’s creditors. According to the local media, HDC described the virus as a “never expected and very negative factor” and the debts of the airline are “damaging the acquisition value of the carrier,” meaning renegotiation of the deal is necessary for its success.

HDC and Kumho Asiana Group have agreed to extend the transaction deadline for six months. And while the future of the airline remains unclear, Asiana Airlines announced that it will increase its frequencies to Los Angeles, San Francisco, Frankfurt and Hong Kong. In addition, Asiana has resumed flight operations to London, Paris, Istanbul and Osaka, Japan.

As a result of COVID-19, Eastar Jet, the Seoul-headquartered low-cost carrier, is also facing the same problem as Asiana. Jeju Air had already signed a deal to acquire a 51% stake in Eastar Jet in March. According to local media, Jeju Air has promised it would pay salaries of Eastar Jet employees, but Jeju Air made a u-turn on this issue in May. Jeju Air denied the criticism and said Eastar Jet’s management has delayed payments to its subcontracted companies and oil refiners.

Jong-Gu Choi, CEO of Eastar Jet, has urged Jeju Air to complete the deal.

“We agree we are to be primarily blamed for the difficulties of Eastar Jet, but Jeju Air also can’t be free from all responsibility,” Choi said in a prepared statement. Meanwhile, Eastar Jet couldn’t benefit from the Korean Government’s bailout package because the acquisition is still underway.

Sang-Jik Lee, the founder of Eastar Jet, and his family will “donate” their shares, worth $34.2 million, to save the cash-strapped airline. Eastar Jet has not paid any salaries since February and temporarily ceased operations in March. The unpaid salaries are estimated to total around $20.8 million.

In response to the “shares donation”, Kyung-Ho Choo, the secretary general of Eastar Jet pilot union, denied that it was a donation. According to Choo, Jeju Air lent $8.3 million to Eastar Jet in December and the due date was Jun 26., meaning the shares owned by Lee are collateral for the loan.

While acquisitions, both big and small, of stakes in South Korean airlines have all but stopped, there is hope that the coming months will bring a renewed vigor to the market. As airlines begin to restart routes and can once again prove their viability in what has quickly emerged as a new age of air travel, the possibility remains of a return to normality in the months ahead.

Will Lee
Will Lee
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