Plans have just been announced for the largest airline merger since the start of the pandemic.
Korean Air plans to buy Asiana Airlines
Korean Air intends to acquire Asiana Airlines in a $ 1.6 billion deal to be finalized in the second half of 2021. Currently, Korean Air is the 18th largest airline in the world and if this deal is completed , the combined airline will become the 10th largest in the world.
Here is the takeover plan, which is quite complex due to the ownership structures of the companies:
- Korean Air plans to raise ~ 2.25 billion dollars through rights proposals in early 2021
- Of that money, $ 1.35 billion will be spent on buying new shares to be sold to Asiana, and the rest will be spent on perpetual bonds of Asiana.
- The Korean Development Bank, the main lender of Asiana Airlines, will inject ~ $ 722 million into Hanjin KAL, by offering rights and convertible bonds; in other words, both former parent companies will still have a stake in the combined airline
As Korean Air Cho President Won-tae describes this takeover:
“The company has decided to help the country’s aviation industry continue to grow (amid uncertainty) and minimize the inflow of public funds (into Asia).”
Meanwhile, the Deputy Minister of Civil Aviation in the Ministry of Land, Infrastructure and Transport said this was an “inevitable solution” to minimize the losses of the two airlines amid the pandemic.
I would now point out that while the plans may seem concrete at the moment, only time will tell whether this merger will actually pass, as many things can still go wrong – whether shareholders will eventually be on board and whether the deal will receive a regulatory approval?
Korean Air acquires Asiana Airlines
Why the two big airlines in Korea are fighting
The truth is that the financial situation of Korean Air and Asiana Airlines was problematic long before the pandemic. South Korea has a population of about 50 million, and the country has two full-service airlines, making it one of the few countries its size with two full-service airlines.
This is not even starting to address all the competition in South Korea from both foreign airlines and low-cost carriers.
This deal is probably particularly useful for Asia, which was on the verge of collapse. In September, the airline received a cash injection from creditors (led by the Korean Development Bank) after the previous largest shareholder withdrew from the sale
South Korea has two full-service airlines
What would the new Korean Air look like?
Assuming this deal gets approved, what can we expect from the combined Asiana and Korean Air? I have a few common thoughts …
Korean Air will be the surviving brand
If the merger is approved, the plan is for the two brands to operate independently in the short term, but ultimately to integrate. As described:
- Asiana and Korean Air will integrate operations, and Korean Air will be the surviving brand
- The two airlines also have three low-cost carriers that will be integrated – this includes Asiana’s Air Busan and Air Seoul and Korean Air’s Jin Air
Korean Air will probably be the surviving brand
Minimizing redundancies is a priority
The chairman of Korean Air said that the security of the jobs of existing employees in the airlines is a top priority. Now, this is probably being done at least in part to get government approval for the deal, but that means the workforce won’t shrink much.
It is claimed that the combined airline will have a surplus of 800-1000 employees. How exactly this is done remains to be seen. The airline is not expected to hire soon, but how will the airline retain the redundant staff?
Good for Delta & SkyTeam, bad for Star Alliance
Korean Air and Delta have a joint venture, as Delta even has a stake in Korean Air. Given this transpacific joint venture and SkyTeam’s membership of Korean Air, it seems very likely that this will be the agreement that will survive.
This means that the Star Alliance will lose an airline. Keep in mind that Asia did not have a joint venture with United, so definitely the partnership with Delta has a greater advantage than everything else that Asia has in the Pacific with an American airline.
Korean Air will probably stay on SkyTeam
What would a combined fleet look like?
Asiana has a fleet of 81 aircraft, while Korean Air has a fleet of 172 aircraft. Several things stand out:
- Korean Air has 10 A380s, and Asiana has six A380s, so that’s 16 A380s put together; I guess the airline will not fully retire the A380, but it may reduce the fleet a bit, although there are some destinations where the A380 makes sense, such as Los Angeles, New York, and so on.
- The combined carrier’s long-distance fleet will be anywhere outside the A380, as it will include 747-400, 747-8, 777-200, 777-300, 787-9, A330-200, A330-300, A350 -900; there are also 787-10 and A350-1000 on request
- Personally, I could see the few remaining 747-400s retiring fairly quickly, and maybe some A330s and 777s would retire, but otherwise I imagine that this diverse fleet would be retained.
Asiana has a fleet of six Airbus A380s
Korean Air and Asiana Airlines are expected to merge to form the world’s 10th largest airline. Although plans for this have already been officially announced, there is still a lot of work to be done before it can be finalized, so we will have to see how this develops.
The plan is for Korean Air to be the surviving brand. I assume that the airline will remain in SkyTeam and maintain its joint venture Delta. There are also many questions about the future of the combined carrier fleet.
What do you think about the acquisition of Asiana by Korean Air and how do you see this happening?