By Choi Kyong-ae
SEOUL, Nov. 16 (Yonhap) -- Korean Air Lines Co.'s takeover of smaller rival Asiana Airlines Inc. -- South Korea's two biggest and full-service carriers -- will reshape the country's airline sector reeling from the fallout from the COVID-19 pandemic, and their marriage faces bumpy roads such as opposition from their workers and regulatory hurdles.
On Monday, Korean Air, the country's biggest and national flag carrier, announced its plan to acquire the debt-laden carrier for 1.8 trillion won (US$1.6 billion) to enjoy economies of scale and survive the virus crisis with state backing.
The transport ministry and Asiana's creditor banks led by the state-run Korea Development Bank (KDB) viewed the deal as an "inevitable decision" to prevent them from suffering bigger losses amid the extended pandemic.
Analysts and industry officials said the country's largest deal ever in the airline sector has to win approval from local and overseas anti-trust regulators and to deal with massive job cuts and business reorganization.
"The integration of the two airlines will make the world's 10th-largest carrier, neither the biggest or second-biggest one in the world. So no strong objection to the merger is expected," Um Kyung-a, an analyst at Shinyoung Securities Co., said over the phone.
In 2019, Korean Air and Asiana ranked 19th and 29th in terms of overall passenger traffic and cargo delivery, respectively. The acquisition will elevate their combined ranking to 7th place, according to the International Air Transport Association.
On domestic routes, the two airlines and their three budget carriers -- Korean Air's Jin Air Co. and Asiana's Air Busan Co. and Air Seoul Inc. -- accounted for a combined 63 percent of travel demand last year.
Korean Air currently employs 18,000 and Asiana 10,150. Jin Air, Air Busan and Air Seoul employ 1,900, 1,450 and 450, respectively.
Employees at the three budget carriers also may have to face job losses as Korean Air said it will gradually integrate them after completing the acquisition of Asiana.
In response to the deal's announcement, unions of Korean Air and Asiana said in a joint statement that the "unilateral" merger and acquisition plan should be scrapped as the plan does not reflect employees' opinions.
Analysts also said reorganization of the airlines' redundant routes on domestic and international routes will be a demanding job.
The transport ministry expected the acquisition to be completed later next year if things go as planned despite the unions' opposition and the pandemic-caused uncertainties.
To speed up the deal, Hanjin KAL Corp., the parent company of Korean Air and holding company of airline conglomerate Hanjin Group, has already submitted a letter of intent to the KDB, Asiana's main creditor.
Korean Air, currently the world's 18th-largest airline in terms of the size of its fleet, will become Asiana's biggest shareholder with a 63.9 percent stake if the acquisition is completed.
The majority 30.77 percent stake in Asiana is currently held by Kumho Industrial Co., an affiliate of airline-to-petrochemical conglomerate Kumho Asiana Group.
Korean Air and Asiana collectively have 247 aircraft, exceeding Air France's 220 and falling slightly behind Lufthansa Deutsche Lufthansa AG's 280.
Korean Air had 22.46 trillion won in debt on assets worth 25.51 trillion won as of the end of September, while Asiana held debts worth 11 trillion won on assets worth 12.34 trillion won at the end of June.
In the process of the deal, Asiana's heavy debts remain a major worry for Korean Air.
As for a possibly extended family feud over management rights at Hanjin Group, analysts said the KDB is expected to help Hanjin Group Chairman Cho Won-tae and his related parties in fending off offensives from an activist fund to take control of its stake in Hanjin KAL.
The 44-year-old chairman Cho had sparred with his elder sister Hyun-ah as she formed the alliance with homegrown equity fund Korea Corporate Governance Improvement (KCGI) and local builder Bando Engineering & Construction Co. in January. The alliance argued that inviting a professional manager would help improve Hanjin Group's management, financial status and shareholder value.
But the three-party alliance failed to dethrone the chairman and is widely expected to make another attempt at Hanjin KAL's shareholders meeting in March next year.
The alliance has recently increased its combined stake in Hanjin KAL to 46.71 percent, higher than the 41.3 percent held by Won-tae, his mother, younger sister, related parties, Delta Air Lines, Inc. and Kakao Corp., the operator of the country's leading messaging app.
Hit hard by the pandemic, airlines have suspended most of their flights on international routes since March, and travel demand has dried up.
On Monday, Hanjin KAL rose 5.7 percent to 82,200 won, Korean Air jumped 13 percent to 26,950 won, and Asiana surged by the daily limit of 30 percent to 5,570 won. All far outperformed the broader KOSPI's 2 percent gain.
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