Korean Air to buy rival Asiana Airlines for $1.6 billion

Early on Monday, the owner of South Korea's flag carrier Korean Air announced that it will spend 1.8 trillion won ($1.6 billion) to take over rival carrier Asiana Airlines.

Once Korean becomes Asiana's largest shareholder with a 63.9% stake, the combined airline will become "one of the top 10 airlines" in the world by size, according to Korean Air.

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The Hanjin Group, which owns Korean Air, plans to raise 2.5 trillion won via rights offerings in 2021. Of that, it will spend 1.5 trillion won to buy new shares sold by Asiana, as well as 300 billion won in Asiana perpetual bonds. Hanjin Group will accept 800 billion won in rights offerings and convertible bonds from the Korea Development Bank, which is the main creditor of Asiana Airlines.

In a statement, Hanjin said the deal to acquire Asiana will "stabilize the Korean aviation industry, which is suffering from the COVID-19 pandemic."

"The company made the decision to help the country's airline industry continue to grow (amid uncertainties) and minimize the injection of public funds (into Asiana)," Korean Air Chairman Cho Won-tae said in a statement.

The current plan is for the two airlines to remain as separate and unique full-service brands. In a statement, Hanjin said that the two brands would give "a competitive disadvantage compared to countries like Germany, France and Singapore with a single major airline."

The group, however, plans to integrate the combined airlines' three low-cost carriers — Jin Air Co., which is owned by Korean Air, Air Busan Co. and Air Seoul Inc., both of which are owned by Asiana.

Before becoming finalized, the deal must be approved by Korea's anti-trust regulator.

Looking at the fleets of the two airlines, there are plenty of similarities — especially when it comes to their long-haul operations. Both airlines operate the Airbus A380 — Korean has 10 and Asiana has six — though the fleet largely remains grounded for both carriers. Similarly, both also have the other superjumbo, the Boeing 747 in their fleets, with different plans for the future of the aircraft and its retirement.

Elsewhere in the long-haul fleet, both airlines have Airbus A330 aircraft — Korean has 29 and Asiana has 15 — and Boeing 777 aircraft — Korean has 54 and Asiana has nine. However, their next-generation fleet of aircraft has been where the two have gone in different directions.

Korean Air went the route of the Boeing 787 Dreamliner. The airline now has a total of 10 of them in its fleet. Asiana, meanwhile, opted for the Airbus A350. It currently has 11 of the aircraft in its fleet.

Related: Where to sit when flying Korean Air’s 787-9 in economy

It's worth noting, too, that the acquisition could mean good news for Delta Air Lines and its flyers. Korean Air is a member of the SkyTeam alliance, of which Delta also belongs. Additionally, Delta owns a 10% stake in the Hanjin Group, as well as a pre-existing joint venture partnership with Korean Air.

Asiana, meanwhile, is a member of the Star Alliance. It remains to be seen exactly what will happen with Asiana's membership in the alliance, however, it's likely that under Korean's ownership, SkyTeam will be getting a new member.

Asiana had a history of financial uncertainty, which grew because of the COVID-19 pandemic and its effect on the aviation industry. In June, the airline revealed that its debts exceeded $11 billion. Because of its financial hardships, there had been reports that the airline would be sold.

In September, Asiana's creditors ended a deal that would see the airline be sold to a consortium led by HDC Hyundai Development Co. That deal fell through, however, over a disagreement about the terms and the pandemic's effect on Asiana and the airline industry.