Korean Air incorporated Asiana Airlines as a subsidiary on the 12th, completing the four-year integration of the two major airlines. As Korean Air appears to be embracing Asiana Airlines, which has had a poor financial structure, interest is focused on what the financial structures of both companies will look like in the future. Industry experts predict that although Korean Air’s financial burden may increase in the short term, a stable business combination will be possible if aviation performance improves in the future.
● Countdown to global ‘mega carrier’… “Asiana’s financial burden can be controlled”
On the 11th, Korean Air paid the balance of 800 billion won to Asiana Airlines for the purchase of new shares. A total of 1.5 trillion won in paid-in capital increase has been paid to a third party. Accordingly, on the 12th, it acquired 131,578,947 new shares (63.88% stake) and incorporated Asiana Airlines as a subsidiary. As a result, Korean Air completed the business combination process four years and one month after first announcing its plan to acquire Asiana Airlines in November 2020. Korean Air plans to operate Asiana Airlines as a subsidiary for the time being for two years and then fully integrate it.
However, there are many financial issues that need to be resolved after integration. Korean Air is in a situation where it is inevitable to invest trillions in funds as well as large-scale investment in equipment ahead of full integration with Asiana Airlines. Asiana Airlines’ debt ratio was at 1,400% in 2022 and 2023, but its net profit is showing a deficit this year and the debt ratio is rapidly increasing as the total debt increases. Asiana Airlines’ accumulated net loss in the third quarter of this year was 66.1 billion won, and its operating profit margin was only 4.1%, which is a loss if interest expenses are excluded.
However, the industry believes that Korean Air’s ‘basic strength’ is strong. Korean Air has been preparing for the acquisition of Asiana Airlines by continuously accumulating cash and reducing debt as its passenger business recovers after COVID-19. It is expected that the financial burden will be limited as the company has built up a strong storehouse.
● The improving aviation economy and credit rating improvement are ‘effective’
The fact that the favorable trend in air cargo, which led to performance during the novel coronavirus infection (Corona 19) period, has been steadily maintained so far is also considered a ‘good news’ for the combination of the two companies. Korean Air made profits in the cargo business during the COVID-19 crisis between 2000 and 2022. In 2022, it recorded the highest ever operating profit of KRW 2.8836 trillion, and is continuing stable management with an operating profit of KRW 1.5869 trillion in 2023.
It is predicted that the recovery of air passengers will also ease the financial burden of the future merger of the two companies. Passenger demand is steadily increasing regardless of external economic variables, including the recovery of long-distance routes to the U.S. and Europe and the increase in travelers to Japan. In particular, this year, Korean Air benefited greatly from strong passenger fares, supported by increased demand for mid- to long-haul routes, business class, and transfers. In fact, Korean Air’s performance in the third quarter of this year (July-September) was recorded at KRW 4.2408 trillion in sales and KRW 618.6 billion in operating profit. Compared to the same period last year, sales and operating profit increased by 9.8% and 18.9%, respectively.
Korean Air’s debt ratio also improved. Korean Air’s debt ratio decreased from 813.9% in 2019 to 199% in the third quarter of 2024. This is the result of capital expansion, accumulating about 2.7 trillion won in net profit from 2020 to the first half of 2023 (January to June). Korean Air’s credit rating also rose from BBB+ to A- in 2023, returning to A grade for the first time in eight years since December 2015.
Mirae Asset Securities analyst Ryu Je-hyeon said, “Considering Korean Air’s cash assets and low debt ratio, Korean Air’s financial risk following the acquisition of Asiana Airlines is limited,” adding, “After consolidation, the estimated debt ratio will only be 292%, the 2021 level.” “It was predicted.
A Korean Air official said, “Korean Air has been making every effort to expand capital, secure liquidity, and improve financial structure for the smooth acquisition of Asiana Airlines,” and added, “We will focus on stably leading the complete integration of the two companies over the next two years.” “He said.
Reporter Park Jae-myeong [email protected]
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