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Who will be the new owner of Asiana Airlines? The question is stimulating enough to roil the stock market and grab the attention of South Korea’s business community. Speculation is rife about groups with the financial wherewithal to pull off an M&A worth more than 1 trillion won (US$880.3 million) or with operations in logistics, distribution, and low-cost carriers (LCC) that would enjoy synergy with an airline. Such groups include SK, Hanwha, Aekyung, Lotte, Shinsegae, CJ, and the Hotel Shilla.

The next steps after the announcement of the sale of Asiana Airlines on Apr. 15 are likely to be a due diligence of Asiana, the selection of preferred bidders, the sell-off of company stock currently held by Kumho Industrial, recapitalization through issuing new stock to third parties, and financial support from the creditors. The process has been streamlined by a swift agreement between the creditors and Kumho Asiana, just 19 days after Park Sam-koo, former chairman of the group, announced his resignation.

Observers believe that an understanding was reached so quickly because a certain amount of progress had already been reached in closed-door deliberations with companies interested in acquiring the airline. The airline finds itself in a dire state: its credit rating will be slashed to junk status if it fails to repay 60 billion won (US$52.82 million) in bonds that mature on Apr. 25. So without any clarity on which companies have their sights on an M&A, the creditors would no doubt have been reluctant to push ahead with deliberations about selling the company.

The eyes of the market are naturally focused on SK. On top of rumors that swirled last year about the SK Group acquiring Asiana, Choi Kyu-nam, former CEO of Jeju Air, was hired last year to handle global business development for the SK Group’s SUPEX council. The prevailing viewpoint is that, since the deal is expected to exceed 1 trillion won, only companies with adequate purchasing power will be able to join the ranks of M&A contenders.

Asiana’s market capitalization jumped as high as 1.5 trillion won because of ongoing talk about the possibility of a sale in recent months. A back-of-the-envelope calculation suggests it would take more than 500 billion won (US$440.33 million) to buy Kumho Industrial’s 33.47% stake in the company and cover the premium for management rights. On top of that, the airline had taken out 3.44 trillion won (US$3.03 billion) in debt as of the end of 2018. Since 1.32 trillion won (US$1.16 billion) of that debt has to be repaid by the end of the year, the airline needs to secure an infusion of new cash by issuing a large amount of new stock. Some market analysts think that the funding actually required for the acquisition will amount to 2 trillion won (US$1.76 billion). But the acquisition price is fluid, and will depend upon the outcome of the due diligence and negotiations.

Another potential bidder is Hanwha, given its aviation engine division. Previously, Hanwha planned to buy a 20% stake (worth about 16 billion won, or US$14.09 million) in a low-cost carrier called Aero K Airlines but pulled out when the airline failed to win an operating license. While Aero K reportedly informed the Kumho Asiana Group last week of its interest in acquiring Air Busan, Kumho Industrial and the creditors apparently prefer an all-in-one sale that would include Air Busan. Other potential candidates for an M&A are the Aekyung Group, which owns Jeju Airport, and groups such as Shinsegae, CJ, and Lotte that handle logistics, distribution, tourism, and duty free and could thus expect synergy with aviation. After news broke about plans to sell off Asiana on Monday, the price of preferred stock at SK Networks, Hanwha, Hanwha Chemical, and HanExpress (a Hanwha affiliate) all soared to the daily cap imposed by the stock market.

By Choi Ha-yan, staff reporter

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