SEOUL - Asiana Airlines, a major South Korean carrier, announced on Tuesday a significant financial restructuring plan for its low-cost subsidiaries, Air Seoul and Air Busan, as part of preparations for their integration into a consolidated low-cost carrier (LCC) under Korean Air’s Jin Air by the end of next year. The move aims to strengthen the financial health of the subsidiaries, reduce integration risks, and enhance synergies amid Asiana’s ongoing merger with Korean Air.
Photo Source: Hanjin KAL Website
Asiana disclosed it will acquire 36 million shares of Air Seoul for 180 billion won ($130 million) through a capital increase, with the transaction set to close on Wednesday. The infusion is intended to stabilize Air Seoul’s operations and improve its balance sheet. Air Seoul, which fell into complete capital impairment in 2019, faced a government mandate in May 2023 to address its financial woes, a directive delayed by nearly three years due to the pandemic’s impact on the aviation sector.
Under South Korea’s Aviation Business Act, the Ministry of Land, Infrastructure and Transport can issue financial improvement orders to airlines with capital erosion exceeding 50% for over a year or those in full capital impairment. Non-compliance risks license revocation. Asiana emphasized Air Seoul’s strong recovery, noting its operating profit margin of 10-20% over the past two years, among the highest in South Korea’s aviation industry. “This capital injection fulfills the ministry’s requirements while ensuring Air Seoul’s sustainable growth,” Asiana said in a statement.
Additionally, Asiana approved a stock consolidation for Air Seoul, merging eight common shares into one at a par value of 5,000 won, effective May 28, to address accumulated losses and further bolster its financial structure.
In a parallel move, Asiana committed to purchasing 100 billion won ($72 million) in perpetual convertible bonds issued by Air Busan. The airline cited the need to mitigate “internal and external uncertainties” and support Air Busan’s financial stability. “This decision reflects our confidence in Air Busan’s potential for sustained performance improvements,” Asiana stated.
The financial support for Air Seoul and Air Busan comes as Asiana navigates its integration into Korean Air, a process that includes merging its LCC affiliates with Jin Air to form a unified low-cost carrier. Analysts say strengthening the subsidiaries’ finances is critical to minimizing liabilities and maximizing operational efficiencies during the transition.
Asiana’s actions underscore the broader challenges facing South Korea’s aviation industry, which has been grappling with post-pandemic recovery and heightened competition. By fortifying its subsidiaries, Asiana aims to position the forthcoming consolidated LCC as a competitive player in the regional market.
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