A Failed Korean Air-Asiana Merger Expected to Deal Harsh Blow to Aviation Industry

It is increasingly pointed out that multiple governments will not allow the Korean Air-Asiana Airlines merger in the end, and then the aviation industry of South Korea will take a hit.

At the same time, it is said that the failure is not a bad ending for Korean Air in that the company’s sales and profits are continuing to increase in the air cargo transportation industry. “Korean Air needs to invest at least trillions of won for the merger, which means the failure can be financially helpful,” said an industry source, adding, “On the other hand, Asiana Airlines’ current debt ratio is about 3,000 percent and this company is unlikely to be able to survive after the failure.”

According to the Financial Supervisory Service, Asiana Airlines’ debts that must be repaid within one year amounted to 5.3807 trillion won as of the end of March this year. The exact debt ratio rose from 2,410 percent to 2,811 percent in the first quarter.

Although Asiana Airlines posted an operating profit of 143.5 billion won in the first quarter, its cumulative operating loss is huge to the point of no survival without the business combination. Besides, with the Yoon Suk-yeol government focusing on the principle of market economy, it is said that another sale attempt in the event of the failure, which will require massive funds, will be impossible immediately.

On the contrary, Korean Air is unlikely to be affected by the outcome. In the first quarter, its operating profit, 788.4 billion won, reached a new high again, led by air cargo transportation. In addition, its passenger transport business is recovering fast with COVID-19 subsiding.

From the viewpoint of South Korea's aviation industry, a failed merger is likely to undermine its competitiveness with global airlines going bigger and bigger. Experts’ consensus is that the combination is essential for the competitiveness of the industry.