Why Did Chung Mong-kyu Suddenly Interrupt the Meeting with Asiana Executives?

[Image source=Yonhap News]

[Asia Economy Reporter Yoo Je-hoon] It has been reported that Chung Mong-gyu, Chairman of HDC Group, abruptly halted his meetings with Asiana Airlines executives, drawing attention to the background of this decision. According to the aviation industry on the 14th, Chairman Chung had been conducting sequential meetings with about 40 Asiana Airlines department heads and executives since last week. As the CEO of the acquiring company (HDC Hyundai Development Company), he was essentially holding a kind of introductory meeting with the management of the acquired company (Asiana Airlines).

However, it is reported that Chairman Chung suddenly stopped the remaining scheduled meetings this week. An industry insider explained, "Chairman Chung had meetings with most of the executives, but as of around the 12th, he stopped them."

Since being selected as the preferred bidder for the acquisition of Asiana Airlines in November last year, Chairman Chung has shown enthusiasm for this merger and acquisition (M&A), declaring a leap toward becoming a 'comprehensive mobility company.' He also instructed the creation of a new brand to be used by both HDC Group and Asiana Airlines.

At a press conference at that time, Chairman Chung stated, "This acquisition is based on a strategic judgment that the aviation industry, a national key industry, aligns with the group's sustainable growth," adding, "Asiana Airlines will secure the industry's highest level of financial soundness, and continuous investment will be made after the acquisition, which is expected to enhance both competitiveness as a top-tier airline and corporate value."

Accordingly, speculation continues in the industry regarding the reasons behind the suspension of these meetings. Given the aviation market is worsening by the hour, some interpret this as Chairman Chung’s deepening concerns about the future direction of Asiana Airlines.

Asiana Airlines posted an operating loss of 427.4 billion KRW on a consolidated basis last year due to overlapping adverse factors such as the boycott of travel to Japan amid Korea-Japan tensions and oversupply on Southeast Asian routes. This marked the first operating loss on a consolidated basis in six years. The net loss on a consolidated basis also expanded by 327% year-on-year to 837.7 billion KRW. The situation this year is no less challenging. The aviation market has frozen due to the full-scale outbreak of the COVID-19 pandemic since early this year. Asiana Airlines has the highest proportion of revenue from Chinese routes among domestic airlines, accounting for 19% as of the third quarter of last year.

Asiana Airlines expects that upon completion of the M&A this year, a large influx of new funds and improvements in cost structure will significantly strengthen financial stability and profitability. HDC Group’s acquisition cost for Asiana Airlines is approximately 2.5 trillion KRW. Of this, 2.18 trillion KRW, excluding the cost of purchasing existing shares, will be injected into Asiana Airlines through a paid-in capital increase. As part of this, HDC Hyundai Development Company recently carried out a paid-in capital increase worth 400 billion KRW. If the schedule proceeds as planned, the Asiana Airlines acquisition will be finalized by the end of April after the March shareholders' meeting, the capital increase, and payment of the acquisition price in April.

However, the industry is concerned that due to Asiana Airlines’ severe financial condition, HDC Group may fall into the 'winner’s curse' with this acquisition. An industry insider said, "There are synergies between some businesses operated by HDC Group, such as duty-free shops and hotels, and the aviation industry, but the entire aviation sector is currently facing a survival crisis," adding, "Even if HDC Group injects additional funds, the financial structure is likely to deteriorate further, which will be a cause for concern."