HDC likely to find rationalizing Asiana Airlines after takeover challenging

HDC Group has the challenging task of rationalizing debt-ridden Asiana Airlines Inc. after it completes takeover process, but the option of reselling the budget carrier and support unit under the full-service parent may not be easy due to murky business conditions in air transportation, according to air and investment bank industry sources.

HDC Holdings chairman Chung Mong-gyu promised no major restructuring after it won the tender for the controlling stake and management right in Asiana Airlines on Nov. 12 after teaming up with Mirae Asset Daewoo Securities.

But once under new ownership, realignment and cost-cutting actions may be inevitable, given the poor financial state of Asiana Airlines.

Besides layoffs, some think HDC Hyundai Development could put Asiana’s subsidiaries including Air Busan and Asiana IDT up for sale. HDC Holdings, the holding entity of HDC Group that adopted the holding structure last year, should buy up the remaining stakes in the Asiana units or dispose of them entirely under the current antitrust laws that mandate a second-tier subsidiary has to either wholly own the third-tier unit or sell it off within two years after acquisition. HDC Hyundai Development is under the control of HDC Holdings.

Shares of Air Busan and Asiana IDT were lifted on the prospects of sale. As of 12:17 p.m. on Thursday, shares of Air Busan rose 2.89 percent to 7,120 won and those of Asiana IDT soared 12.65 percent to 28,950 won.

By finding buyers for the budget carriers cannot be easy. Only about two – Jeju Air and Jin Air under rivaling full-service Korean Air – can afford to expand.

The budget airline industry mostly running on short-haul routes has been making losses since Koreans shunned travel to their previous favorite overseas destination – Japan – over past and trade issues. Turbulence in Hong Kong also reduced flight demand.

Grounding of Boeing’s B737NG jets due to some serious mechanical defects is another cause for concern for local low-cost carriers (LCCs) heavily dependent on the model.

The group could put Air Busan and Asiana IDT directly under HDC Hyundai Development or HDC Holdings to avoid violation in holding-related regulations.

HDC Group aims to complete the acquisition deal within this year and create a new aviation brand. The consortium of HDC Hyundai Development and Mirae Asset Daewoo beat out the Aekyung-Stone Bridge alliance in the bid for Asiana Airlines after submitting the highest bid of over 2.4 trillion won ($2.1 billion), about 500 billion won higher than its rival and what the creditors had sought for.

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