[Click eStock] "Asiana Airlines, Long Time Needed Until Financial and Business Normalization"

Korea Investment & Securities Report
Maintain 'Neutral' Investment Opinion
Government Role Crucial... Long Time Needed Until Normalization

[Asia Economy Reporter Minji Lee] Korea Investment & Securities maintained a 'Neutral' investment rating on Asiana Airlines on the 15th, stating that its financial structure had been deteriorating even before the outbreak of the novel coronavirus disease (COVID-19), and therefore it will take a long time to improve its fundamentals.

Kumho Industrial, the largest shareholder of Asiana Airlines, officially notified HDC Hyundai Development Company on the 11th that the stock purchase agreement signed last December had been terminated. The merger and acquisition process, which had been ongoing for 10 months since HDC was selected as the preferred bidder, has now moved to a lawsuit over the refund of the 250 billion KRW deposit.

Accordingly, Asiana Airlines is expected to return to creditor management for the first time in six years. First, the Korea Development Bank is expected to provide an additional 2.4 trillion KRW from the Industrial Stabilization Fund to Asiana Airlines and to resume the sale once the impact of COVID-19 subsides.

[Image source=Yonhap News]

The Korea Development Bank is reportedly considering converting perpetual bonds into equity and reducing Kumho Industrial's shareholding. If the currently outstanding 800 billion KRW convertible bonds are converted into shares, the bank's stake will rise to 37%, while Kumho Industrial's shareholding will decrease from the current 30.8% to 23.5%. Since the Industrial Stabilization Fund will also support more than 20% in equity-related forms, the government's influence is expected to become even stronger.

Choi Go-woon, a researcher at Korea Investment & Securities, explained, "Since the number of employees must be maintained at over 90% compared to early May for six months, it will take time before full-scale restructuring can begin," adding, "Instead, the focus of reorganization is expected to be on subsidiaries such as Air Busan, Air Seoul, and Kumho Resort."

The possibility of a no-deal (no deal) had already been anticipated three months ago. It was not that there was no Plan B. Depending on the government's will for normalization, turnaround expectations similar to the case of Japan Airlines (JAL) might attract attention. Even if restructuring events such as a free capital reduction or business unit sales occur, the stock price momentum is expected to be short-lived. Researcher Choi said, "Asiana Airlines' finances and the aviation industry conditions have been deteriorating over the past several years even without COVID-19," adding, "It seems that patience is required until the fundamentals improve."