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26 November, 2020Euromoney, November 20, 2020
The proposed merger of Korean Air and Asiana Airlines has some interesting sub-plots to it.
One is the relative buoyancy of domestic M&A at a time when cross-border deals are still logistically almost impossible. Another is the enduring power of Korea Development Bank (KDB) as a powerbroker. A third: Credit Suisse’s ability to hang on to a South Korean mandate even when a deal appears stricken.
A year ago, Euromoney reported on the proposed sale of Asiana by Kumho Industrial, its largest shareholder, to a consortium led by Hyundai Development Company (HDC).
That was a deal pretty rich in sub-plots itself, such as the emotional resonance of the airline’s connection to Gwangju, the city that suffered most after South Korea’s coup d’état in 1979, and the presence of a Gwangju native in the buyer syndicate.
However, the deal never got over the line, despite agreements having been signed on December 27, 2019.
Covid-19 clearly had an impact, prompting HDC to seek 12 weeks of additional due diligence. Eventually, the government and KDB – the main creditor bank to the troubled Kumho conglomerate – lost confidence that the deal would ever go ahead and instructed Asiana and Kumho to terminate the agreement on September 11.
One would think that would be the end of any hope of an aviation deal in the middle of a pandemic, but on Monday, Korean Air entered into a definitive agreement to acquire a controlling stake in Asiana for the equivalent of $1.6 billion.
In a country such as South Korea, with the pandemic largely under control and due-diligence meetings still practical, large domestic M&A is apparently still achievable.
Behind the scenes
This is an interesting deal in aviation terms – merging the only two full-service carriers in the country, removing competition, creating the seventh largest airline in the world in terms of combined passenger and cargo size, with combined revenue of $15 billion and assets of $36 billion – but from Euromoney’s point of view, the more intriguing details are behind the scenes.
Firstly, there’s KDB. The development bank knows what it is good at – and it isn’t aviation.
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