KCGI: "Hanjin, Total Management Failure... Professional Management System as an Alternative" (Comprehensive)

"Excessive Debt Ratio at Korean Air... Cho Won-tae's Management Reform Plan Shows No Progress"
"The Trend Has Shifted... No Consideration for Extraordinary Shareholders' Meeting"

[Asia Economy Reporters Jehoon Yoo, Hyowon Jang, Minji Lee] As the shareholder coalition aiming to normalize Hanjin Group announced plans for a long-term battle by acquiring additional shares of Hanjin KAL, they have launched a public opinion campaign targeting minority shareholders and Hanjin Group employees. They defined Chairman Cho Won-tae's Hanjin Group leadership as a "comprehensive management failure," emphasizing the legitimacy of the three-party coalition, and defended against criticisms of lacking experts by promoting a "platform business" approach.

On the morning of the 20th, the shareholder coalition held its first press briefing at the Glad Hotel in Yeouido, Seoul, under the theme "Diagnosis of the Current Crisis and Future Direction of Hanjin Group, and the Role of Professional Management." The coalition is a tripartite alliance consisting of former Korean Air Vice President Cho Hyun-ah, private equity fund KCGI, and Bando Construction.

Two representatives attended the briefing: KCGI CEO Kang Sung-bu and Kim Shin-bae, former SK Vice Chairman and a candidate for inside director from the shareholder coalition. Other key figures, including former Vice President Cho and representatives from Bando Construction, did not appear, reflecting the coalition's emphasis on the "professional management system" as their alliance rationale.

◆Highlighting Failures of Existing Management... Also Appeasing Labor Unions = During the presentation, CEO Kang characterized Chairman Cho's leadership of Hanjin Group as a "comprehensive management failure." He pointed out that issues such as the acquisition of the bankrupt Hanjin Shipping and governance problems have hindered Hanjin Group's growth potential.

Kang particularly focused on the debt ratio issue. From 2016 to 2018, the average debt ratio was 861.9%, ranking first among KOSPI 200 companies (excluding financial firms), and showing a significant gap compared to global airlines maintaining stable debt levels.

Kang stated, "Korean Air's debt ratio is outstandingly high even among KOSPI 200 companies, and if perpetual bonds are recognized as debt, the situation could worsen further. Of course, the airline industry is challenging for any management, but global airlines are achieving good results with relatively low debt ratios," he criticized. He also downplayed Chairman Cho's management reform plans announced on the 6th and 7th, saying "there has been no progress over the past year."

He also made remarks mindful of opposition from labor unions under Hanjin Group. Kang said, "We have never conducted artificial restructuring while managing private equity funds," and added, "My personal belief is that running a company means creating jobs."

◆Responding to Lack of Experts with 'Platform Business' = Kang also proposed a future vision of developing the airline business into a "platform business." This aligns with Chairman Cho's IT collaboration efforts, starting with the adoption of Amazon Web Services (AWS) and cloud transformation.

He mentioned that during the Asiana Airlines acquisition attempt, they proposed platform-related cooperation to Kakao, and emphasized, "Kim, a candidate for inside director, is a former SK Telecom executive and is expected to perform well in areas like the Internet of Things (IoT) and Artificial Intelligence (AI)." This is interpreted as a response to industry concerns about the lack of airline experts.

In fact, the shareholder coalition recommended inside director candidates including former Vice Chairman Kim on the 13th, but except for former T'way Air CEO Ham Cheol-ho, who is a non-executive director candidate, there are no candidates with airline experience. Former Korean Airport Executive Director Kim Chi-hoon, who had worked in Korean Air's hotel business division, withdrew his candidacy.

Within the industry, there are somewhat skeptical reactions to the coalition's emphasis on platform business. A representative of a national airline said, "Platform business is an area Chairman Cho is already pursuing through collaboration with Kakao and cloud transformation, and experience related to airline ticket sales structures is also necessary," adding, "It lacks specificity."

◆Additional Share Purchases... Preparing for a Long-Term Battle = The shareholder coalition clearly expressed its determination for a long-term battle. Even if they fail to enter the board at the regular shareholders' meeting in March, they plan to secure management rights through extraordinary shareholders' meetings or next year's regular meeting. Since Chairman Cho's term as Korean Air CEO expires next year, the management dispute could intensify.

According to the financial investment industry, Bando Construction, a member of the shareholder coalition, has increased its stake in Hanjin KAL by 4.59% since last week, raising its shareholding to about 13%. Although shares purchased after the shareholder registry closure date (December 26) do not affect voting rights, the coalition's total stake expands to around 36%. The competition for shares is expected to become fiercer. Bando Construction holds about 800 billion KRW in "ammunition" (cash assets), and KCGI is also forming a private equity fund named "KCGI No.1-5" targeting 100 billion KRW.

A financial investment industry official said, "Even if Chairman Cho's side narrowly wins this shareholders' meeting, the shareholder coalition including KCGI and Bando will look for the next opportunity," adding, "Since it is unpredictable how the structure will be reorganized after the meeting, the share competition is expected to develop in a complex manner."