On December 1st, a Seoul court ruled against an injunction intended to halt the plans for Korean Air to take over longtime rival Asiana Airlines. Thus, the first hurdle to creating a single Korean full-service carrier, and the world’s tenth-largest airline, has been cleared.
On Tuesday, the Seoul Central District Court ruled against an injunction against Korean Air’s planned takeover of compatriot carrier Asiana Airlines. Thus, the plan to create the world’s tenth-largest airline in fleet size, announced mid-November, is one step closer to coming to fruition.
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Injunction filed by Korean Air shareholders
The opposition against the merger came not from other airlines concerned with the competition but from private equity fund and Korean Air shareholder Korea Corporate Governance Improvement (KCGI). The fund believes that a cash injection from the state-owned Korea Development Bank (KDB) would weaken existing shareholders’ value.
While this may be true, the court turned down the injunction and removed the first hurdle on the path to joining the two carriers.
“The case involving issuance of new shares is in accordance with the commercial law and Hanjin KAL’s articles of incorporation and has been done within necessary boundaries to achieve the goal of managing a consolidated airline,” the court said in the ruling seen by the Korea Herald.
The plan is for Korean Air and its parent company Hanjin KAL to raise 2.5 trillion won ($2.26 billion) via a rights offering at the beginning of next year. It would sell 800 billion won ($723 million) of this to the KDB. Korean Air would then acquire Asiana for 1.8 trillion won ($1.62 billion).
Tenth-largest airline in the world
If successful, the merger would create one of the world’s top ten airlines by size and 15th in distance flown. It would boast a fleet of 259 aircraft and, according to the Korea Herald, combined assets of 40 trillion won ($36.1 billion). When the plans for the takeover were announced last month, Hanjin said in a statement,
“In general, countries with a population less than 100 million have a single full-service carrier. However, Korea has two full-service carriers, which gives it a competitive disadvantage compared to countries like Germany, France, and Singapore with a single major airline.”
Following the court’s ruling on Tuesday, Hanjin Group said it would put its best efforts into overcoming the crisis, strengthening competitiveness, and ensuring job stability.
Asiana employees feeling frustrated
Meanwhile, the deal between the rival carriers is not appreciated by all Asiana employees. A source, working as a manager for the airline and asking not to be named, told Nikkei Asia at the beginning of the week that,
“I feel empty. We have tried to catch up to Korean Air for the last 30 years, but now we will lose our company name. That is frustrating. [Korea Development Bank] CEO Lee Dong-gull said a few months ago that we can recover under our own power, but now he says we should be sold to Korean Air because we cannot survive. It does not make sense at all.”
What are your thoughts on the intended merger of two carriers of such caliber? Let us know your thoughts in the comments.