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Companies

Asiana Airlines put on chopping block as Moon seeks chaebol reform

Embattled conglomerate agrees to unload crown jewel under pressure from creditors

Asiana Airlines is South Korea's second-largest carrier operating flights to over 20 countries and regions.   © Getty Images

SEOUL -- Troubled conglomerate Kumho Asiana Group has decided to sell its interest in Asiana Airlines, South Korea's second-largest airline responsible for over 60% of groupwide sales, in a move that essentially breaks up the group.

Viewed as economic drivers, conglomerates often received government protection when they fell on hard times. But this time President Moon Jae-in has come down hard on the Kumho group amid mounting public pressure and growing economic woes.

Parent Kumho Industrial will be unloading its entire 33% stake. The buyer and price have yet to be decided. Several South Korean conglomerates are on the list of potential buyers since the airline does not need to obtain a new license as long as it remains under South Korean ownership.

The group had fallen into financial difficulty from a haphazard acquisitions strategy, and needs to secure 60 billion won ($53 million) by April 25 and 1.19 trillion won by the end of the year in the form of loans and refinancing.

Asiana Airlines, which operates passenger flights in over 20 countries and regions, faces growing pressure from low-cost carriers. The average utilization rate of its jets fell under 50% in 2018, when it logged a 195.8 billion won net loss in 2018 on a revenue of 7.18 trillion won. The company also suffered an accounting scandal earlier this year, which led to Park Sam-koo, a member of the founding family, stepping down from group management last month.

Without the airline, the Kumho group will only maintain relatively small operations such as in logistics and construction. It initially aimed to make a recovery without relinquishing its crown jewel. But the state-owned Korea Development Bank and other creditors are believed to have demanded the sale in exchange for additional financial support, which the company needs to pay back bonds.

"Kumho has lost its credibility [to KDB] by changing its word many times," said Park Ju-keun, president at CEO Score. "It also suggested a self-rescue plan that made no sense."

A manager at a state-run bank said: "KDB has managed Kumho group's debt for a long time. This time, the bank gave a signal that it will not tolerate a company's resistance anymore." 

Tougher government demands against family-owned conglomerates, or chaebols, reflect a shift within South Korean society, Sogang University professor Seo Jeong-il said. 

"A company's survival used to be considered intertwined with the founding family's right to leadership, but more South Koreans now have harsher attitudes on these families' control over conglomerates," Seo said.

As shareholders demand greater rights, and public anger grows over the founding families' monopoly on the country's wealth, Moon is moving to make good on the reforms at conglomerates that he promised in his 2017 election campaign.

For example, the state-run National Pension Service has adopted a stewardship code intended to promote change and transparency at conglomerates. While some critics say Moon was largely trying to lift sinking ratings, he nevertheless is signaling his commitment to change at the conglomerates as the South Korean economy struggles more than expected.

Kumho's accounting scandal, in which it falsely declared revenues and losses, only hardened the government's attitude toward the group. Park stepped down swiftly after the issue came to light, but many viewed this as a maneuver to clear the way for his eldest son Park Se-chang.

"There's no point if the son takes over the conglomerate," a cabinet official had said at the time.

The Kumho group is considered to have close ties to former President Kim Dae-jung, one of Moon's progressive predecessors. But Moon is not playing favorites, even though the group likely would have received state assistance in the past.

However, not all see recent developments as an overall shift in government policy. "It is true that KDB pushed hard this time compared to the past, but I don't think the government changed its policy, because it kept Hyundai Merchant Marine alive," the state-run bank manager said, referring to the de facto holding company of the Hyundai Group.

"Kumho lost its timing," a vice president of a conglomerate said. "I don't think [the case] can be applied to general corporations as a whole."

Nikkei staff reporter Kim Jaewon in Seoul contributed to this story.

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