[Exclusive] Asiana Airlines Loses Case, Fined 8.1 Billion KRW for Unfair Support to In-flight Meal Subsidiary

Asiana Airlines, whose financial soundness concerns have grown due to delays in the Korean Air merger, also lost a lawsuit challenging a fine of approximately 8.1 billion KRW related to its in-flight meal business.

According to the legal community on the 1st, the Seoul High Court Administrative Division 6-1 (Presiding Judge Hwang Ui-dong) ruled against Asiana Airlines in a lawsuit seeking to cancel the corrective order and fine payment order filed against the Korea Fair Trade Commission (KFTC). Fair trade lawsuits proceed in a two-tier system, with the Seoul High Court handling the first trial and the Supreme Court handling the second trial.

The court stated, "If the in-flight meal contract in this case had not existed, Gate Group would have had no reason to proceed with the acquisition contract of Kumho Express’s bonds with warrants (BW)," and added, "It is fully recognizable that Asiana Airlines intended to support Kumho Express and former Kumho Asiana Group Chairman Park Sam-gu."

Previously, Kumho Asiana Group experienced a management crisis after 2010, and former Chairman Park established Kumho Express in 2015 to pursue management normalization through acquiring affiliates. However, Kumho Express needed substantial funds to reacquire major affiliates.

The following year, Kumho Asiana Group proposed to several companies a plan to transfer Asiana Airlines’ exclusive in-flight meal supply rights (for 30 years) on the condition of acquiring Kumho Express’s (formerly Kumho Holdings) bonds with warrants (BW). Subsequently, Asiana Airlines transferred the exclusive in-flight meal business rights to Gate Gourmet Korea (GGK), a joint venture established with Gate Group, and Gate Group acquired 160 billion KRW worth of BW interest-free. However, during this process, the in-flight meal supplier for Asiana Airlines was limited to only GGK, which led to the so-called 'in-flight meal crisis' in 2018, where a large number of in-flight meals were not supplied.

The KFTC viewed that Kumho Express gained approximately 16.2 billion KRW in profits by acquiring the BW interest-free at a rate lower than the normal interest rate. It also stated, "In relation to the in-flight meal business, Kumho Asiana Group unfairly supported other affiliates within the group," imposing a fine of 8.147 billion KRW, which is half of the violation amount, on Asiana Airlines and issuing a corrective order to prevent recurrence.

The KFTC judged, "Although Kumho Express was in poor financial condition and had difficulty raising additional funds, the BW acquisition contract was made possible through this in-flight meal supply contract," and added, "Asiana Airlines provided economic benefits by foregoing more favorable in-flight meal trading conditions and supporting Kumho Express’s BW issuance."

Furthermore, the KFTC stated, "Thanks to this, Kumho Express and former Chairman Park were able to strengthen their group control, and Kumho Express enjoyed favorable competitive conditions in the passenger transportation market, raising concerns about harming fair trade."

On the other hand, at the time, Asiana Airlines argued, "The contract was signed with GGK, which has excellent in-flight meal manufacturing capabilities, after the contract with the previous supplier ended," and claimed, "It was a normal business decision considering trust damage during the 15-year contract period and future in-flight meal quality improvements."

During the trial, Asiana Airlines argued, "Since former Chairman Park made the contract mainly with members from the group’s strategic management office, the plaintiff, who is merely a victim of breach of trust, should not be held responsible."

Regarding this, the court rejected the claim, stating, "The person involved and leading the entire process was former Chairman Park, who was the plaintiff’s 'CEO' at the time, and the person who led the contract signing was also an executive in charge of the plaintiff."

Meanwhile, former Chairman Park was sentenced to 10 years in prison in the first trial of a criminal case for unfairly supporting his personal company by mobilizing affiliates and embezzling company funds amounting to around 300 billion KRW. Park, who is undergoing an appeal trial, was released on bail in January.