Korean Air has reached a deal to acquire its chief competitor Asiana Airlines, with plans to consolidate into a single airline that will dominate the Korean air market.
Per the agreement, Korean will acquire a majority share in Asiana for 1.8 trillion Korean won, about $1.6 billion. The carrier plans to issue new shares early next year to raise about 2.5 trillion won worth of capital, 730 billion of which will come from Korean Airlines parent company Hanjin KAL. Asiana's main creditor, the state-run Korean Development Bank, will help fund the acquisition with an 800 billion won investment into Hanjin, which it will immediately lend to Korean Air, which in turn will use a portion of that to keep Asiana's operations running through the end of the year.
A Korean Air spokesperson told Reuters that the carrier plans initially to continue operating Asiana as an independent affiliate but ultimately phase out the Asiana brand and integrate it into Korean Air.
The combined carrier would be the 15th largest airline in the world by kilometers per passenger—Korean currently is the 28th largest and Asiana the 42nd largest—and would give Korean control of about 60 percent of international routes in South Korea, according to Reuters.
Even so, Korea's antitrust regulator, the Fair Trade Commission, is unlikely to object to the acquisition, as Korea's aviation industry likely would face collapse if the carriers do not combine, according to The Korea Times. In a statement, Korean Air said the acquisition was necessary to "stabilize the Korean aviation industry."
"Considering that Korean Air's financial status could also be endangered if the Covid-19 situation is prolonged, it is inevitable to restructure the domestic aviation market to enhance its competitiveness and minimize the injection of public funds," according to the carrier.
Korean Air also noted that most countries with a similar population size to South Korea—Germany and France, for example—have only one major full-service carrier. Acquiring Asiana "and the expansion of its routes, fleet and capacity will give the airline the competitiveness to compete with global mega airlines," according to Korean Air.
Korean Air had enjoyed a monopoly status prior to the launch of Asiana in 1988, the same year Seoul hosted the Summer Olympic Games. Asiana expanded to become a global carrier and joined the Star Alliance in 2003. Amid losses in recent years, Hyundai Development Co. had been in talks to acquire Asiana from its parent company, Kumho Industrial, but that deal collapsed in September.
Korean Air said the acquisition will strengthen Incheon International Airport as a global transportation hub and could pave the way for more joint ventures. Delta Air Lines, which in recent years formed a JV partnership with Korean Air and is a Hanjin shareholder, also said the acquisition was welcome news.
"[The merger] will contribute to a stronger overall aviation market in Korea and further travel growth between Asia and the U.S.," Delta said in a statement. "As travel demand returns, a consolidated airline will be well positioned to succeed and be a stronger partner for Delta."