2023-11-04 08:00:19
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Watch in the Story is a corner that digs into major issues of companies that occurred during the week every Saturday in a deep, easy, and fun way. By putting a story into the industry, we look into the stories behind the issue and the inside of the companies. [편집자]
Korean Air, overcame a big mountain
Korean Air has passed a critical juncture for its merger with Asiana Airlines. This is because Asiana decided to separate and sell its cargo division. Korean Air, which desperately needs approval from the European Commission (EC), is now able to make its final bid. EC approval is essential for Korean Air. If the EC does not approve it, the remaining United States and Japan are likely to also reject it.
Meanwhile, Korean Air has been working hard to meet the EC’s requirements. The deadline for submitting amendments has been postponed several times. At the core of this was the sale of Asiana’s cargo division. The EC has been concerned regarding restrictions on competition in the cargo business on European routes if Korean Air and Asiana merge. This is why Korean Air has decided to sell its cargo division, which is considered valuable to Asiana.
/Photo=Reporter Myung-geun Lee qwe123@
Korean Air has presented a plan to resolve the EC’s biggest concerns, so it can put things at ease. There is a sense of relief that the Asiana merger, which has been dragging on for the past three years, is coming to an end. As it was predicted that the fallout that Korean Air would have to endure if the merger were to fail, Korean Air accepted the best scenario.
The industry believes that since Asiana has decided to sell its cargo division, the EC has no justification for not approving the merger between Korean Air and Asiana. Accordingly, there are many opinions that the EC will give ‘conditional approval’ for the merger of Korean Air and Asiana. From Korean Air’s perspective, it doesn’t really matter. First of all, it is important to get ‘approval’.
A fierce board meeting
Asiana’s decision to sell its cargo business was not smooth. No matter how much Korean Air wants to sell Asiana’s cargo business, it must obtain approval from the Asiana board of directors. Therefore, Korean Air also waited for the results of the Asiana board of directors following completing all preparations. There was mostly optimism before the board meeting. Since Korean Air, the subject of the merger, is taking the lead anyway, there were many opinions that everything would go according to Korean Air’s wishes.
However, surprisingly, there was strong opposition from within the board of directors. Asiana’s board of directors consists of a total of six people. It consisted of two internal directors and four external directors. Inside directors include Yoo Won-seok, CEO of Asiana Airlines, and Jin Gwang-ho, Asiana Airlines safety and security director (executive director), and outside directors include Hae-sik Park, senior research fellow at the Korea Institute of Finance, Chang-beon Yoon, advisor at Kim & Chang Law Offices, Jin-cheol Bae, former chairman of the Korea Fair Trade Mediation Commission, and Hye-ryun Kang of Ewha Womans University. An emeritus professor from the College of Business is participating.
/Photo=Reporter Myung-geun Lee qwe123@
The variable occurred just before the board meeting held on the 30th of last month. Jin Gwang-ho, head of safety and security at Asiana Airlines, who was known to oppose the sale of the cargo business, suddenly announced his resignation from the board of directors. There are now 5 remaining board members. It must be approved by three of them. The board meeting began at 2 p.m. However, the pros and cons were sharply opposed, and no conclusion was reached even following 9 p.m.
At the time of the first board meeting, intense discussions took place over the qualifications of Advisor Yoon of Kim & Chang, who was advising on Korean Air’s merger with Asiana, and the opinion that this was a ‘breach of trust’ when it was natural that a loss would be incurred if a valuable cargo business was sold. The board meeting, which ultimately failed to reach a conclusion, was reconvened on the 2nd. At the board meeting, which started at 7:30 a.m., another heated debate took place. And following much pains, it was passed with 3 in favor, 1 once morest, and 1 abstention.
‘3 in favor, 1 once morest, 1 abstention’
It is known that the pros and cons of the sale of Asiana’s cargo business have been clearly divided among Asiana board members. Representative Won, Senior Research Fellow Park, and Advisor Yoon are said to have expressed their support. On the other hand, former Chairman Bae and Professor Emeritus Kang are said to have taken a firm stance once morest it. At the first board meeting, a vote might not be reached due to Advisor Yoon’s qualifications due to ‘conflict of interest’, and this is cited as the reason for the second board meeting.
At the second board meeting, it was reported that Advisor Yoon exercised his vote on the issue of Advisor Yoon’s qualifications, which was an issue at the first board meeting, following receiving an interpretation from a large domestic law firm that “there was no problem with his qualifications.” This resulted in 3 votes in favor, and former Chairman Bae, who had been opposing the sale, is known to have voted according to his own will. And Professor Emeritus Kang, who was opposed to the sale, withdrew before the vote and was treated as an abstention.
/Photo=Reporter Myung-geun Lee qwe123@
The sale of Asiana’s cargo business was such a sensitive issue that there was intense discussion even at the board of directors. As expected, sales from Asiana’s cargo division accounted for 21.7% of Asiana’s total sales in the first half of this year. When the global airline industry was experiencing difficulties due to COVID-19, Asiana was able to survive thanks to its cargo division. At a large airline (FSC) like Asiana, cargo is one of the two wings responsible for business along with passengers.
If Asiana sells its cargo business, only passenger business will remain. With the recent increase in passenger demand, FSCs are gaining some breathing space, but the share of cargo cannot be ignored. An industry official said, “For FSC, the proportion of passengers is large, but it is advantageous for the overall business structure to do cargo business together. Above all, Asiana has a strong network and trust built with shippers, so even if someone else takes over, it will be easy to continue this.” “It won’t happen,” he said.
the remaining embers
In any case, it was decided to sell the Asiana cargo business. Korean Air, which had been preparing in advance, immediately announced a support plan for Asiana. This may be proof that Korean Air also knows how much of a loss it is risking for Asiana to launch its cargo business. In addition, Korean Air was tasked with completing the sale of the Asiana cargo business as quickly as possible. Korean Air plans to receive EC approval by the end of January next year.
The industry believes that selling the Asiana cargo business will not be that simple. First of all, who will buy it? Currently, four domestic low-cost carriers (LCCs) are known to be interested. Price is an issue. The price estimated by the industry is around 500 to 700 billion won. In addition, if the Asiana cargo division is acquired, the company will have to take on regarding 1 trillion won in debt.
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Freight rates have also recently fallen significantly. The industry believes that it has fallen by regarding 60% compared to the time of COVID-19. If this happens, the attractiveness of Asiana’s cargo division will inevitably decline. It must also pass the most important EC screening. Although this decision meets the EC’s requirements as much as possible, it is unknown what other problems may be encountered. This is why Korean Air does not let down its guard.
Even if we have overcome the EC wall, the gateway to the United States and Japan still remains. Of course, it is expected to be easier than EC, but this does not guarantee confidence. We cannot rule out the possibility that the United States and Japan will demand Korean Air return its valuable routes. Korean Air took a breather with the decision to sell its Asiana cargo business. But it’s not over yet. We will have to watch Korean Air’s next move closely.
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