M&A Faces Consecutive 'Collapse Risks'... Aviation Restructuring Caught in a Black Hole

"This Year Surviving with Government Support and Capital Expansion... Second Crisis Expected Next Year"

There has been no significant progress in the Asiana Airlines M&A either. HDC Hyundai Development Company received notification from the Russian competition authorities yesterday afternoon that the corporate merger filing procedure has been completed regarding the acquisition of Asiana Airlines, and is currently conducting consultations with KDB Industrial Bank to reassess the acquisition status. However, the market sentiment is still that it is too early to be reassured.

[Image source=Yonhap News]

[Asia Economy Reporter Yoo Je-hoon] As Jeju Air's acquisition and merger (M&A) of Eastar Jet faces the risk of collapse, the restructuring of the aviation industry is also being drawn into a black hole. Industry insiders express concerns that, given the prolonged signs of the COVID-19 pandemic, the upcoming restructuring process will not proceed smoothly.

According to the aviation industry on the 3rd, Jeju Air recently sent an official letter to Eastar Jet stating that "if the preconditions for acquisition are not fulfilled within 10 business days, the contract may be terminated." This was a 'final ultimatum' sent in response to Eastar Jet's request to resume negotiations following the announcement by Lee Sang-jik, a member of the Democratic Party of Korea, to donate his shares.

The industry interprets Jeju Air's notice as signaling the failure of the M&A. It is estimated that resolving the preconditions would require between 80 billion and 100 billion KRW, which Eastar Jet's financial situation cannot bear.

If the acquisition ultimately fails, Eastar Jet's future becomes uncertain. It is known that Eastar Jet's management expressed concerns at a labor-management meeting at the end of last month that "if the deal does not go through, court receivership and liquidation procedures will be inevitable." In response, the Eastar Jet Pilots' Union held a protest rally at the Aekyung Group headquarters in Mapo-gu, Seoul, that morning, adjusting their struggle coordinates as the M&A faces collapse.

There has been no significant progress in the Asiana Airlines M&A either. HDC Hyundai Development Company received notification from the Russian competition authorities yesterday afternoon that the corporate merger filing procedure has been completed regarding the acquisition of Asiana Airlines, and is currently conducting consultations with KDB Industrial Bank to reassess the acquisition status. However, the market sentiment is still that it is too early to be reassured.

The aviation industry restructuring has fallen into a black hole because the aviation market has frozen to an unprecedented extent due to COVID-19. In May alone, the number of international passengers was about 138,000, which is only 2% compared to the previous year. To make matters worse, with signs of the COVID-19 pandemic prolonging, pessimistic forecasts dominate that demand recovery will be difficult for at least 1 to 2 years.

Experts worry that if the COVID-19 situation prolongs, the ongoing restructuring will also not proceed smoothly. There are nine national airlines, unchanged from before the COVID-19 crisis. In the second half of this year, new airlines such as Aero K and Air Premia are also scheduled to launch operations, which could worsen the oversupply.

Professor Hwang Yong-sik of Sejong University said, "The aviation industry can endure this year through government support or capital increases, but if the COVID-19 crisis prolongs, from early next year, many will face a liquidity cliff." He added, "It would be ideal if the subsequent restructuring methods minimize damage through M&A, but if conditions remain unfavorable as they are now, cases of bankruptcy like those overseas will also emerge."