Asiana Airlines to decide on cargo unit sale via board ballot

Asiana Airlines Inc., South Korea’s second-largest air carrier, will decide whether to sell its cargo business via its board meeting on October 30, as Korean Air Lines Co. seeks to win antitrust approval from European Union (EU) regulators for a takeover of its rival. The Asiana board now faces a dilemma as it must weigh the benefits against the financial burden of repaying Korean Air if the sale falls through.

There is also concern that sales of Asiana’s valuable assets, such as its airport slots and cargo business, as requested by EU competition authorities, could weaken the aviation industry, which is a vital national sector.

The primary agenda for the board meeting will be whether to continue with the cargo business sale, according to industry sources. Earlier, the EU authorities requested remedial measures, including returning landing slots and the sale of the cargo business, to address concerns about a potential monopoly on critical passenger and cargo routes between Europe and Korea resulting from a Korean Air takeover of Asiana Airlines.

Korean Air requires the approval of Asiana’s board of directors to submit these remedies to the European authority by the end of October 2023. The board consists of two internal directors and four external directors, requiring a majority of four ‘Yea’ votes.

The board is also expected to encounter a last-minute struggle in reaching a consensus. Most of the opposition comes from external directors, who believe that the original purpose of the takeover, which started under governmental leadership, has been compromised.

They also argue that selling Asiana’s key business units to Korean Air could undermine Asiana‘s own competitiveness, forcing the board into a difficult situation where a decision is made against the company’s interests.

For the board, the key question is how much the sale of the cargo business would benefit Asiana Airlines itself, as it is expected to have a negative impact on Asiana’s own financial performance. Some industry sources said maintaining the rivalry among the top two domestic carriers is essential to safeguard national interests.

As it awaits the board’s decision, Asiana has been expanding its cargo business as part of its diversified portfolio, a strategy that proved successful during the pandemic. Asiana’s cargo business played a significant role in offsetting the decline in passenger revenue, exceeding 3 trillion won ($2.2 billion) in 2021. The cargo division now contributes to over 20 percent of Asiana’s total revenue, as freight costs have returned to normal levels.

The industry is also concerned about the long-term impact of the takeover on the Korean aviation industry. “What will become key during the approval process is how the two airlines come up with a mid to long-term strategy to compensate for potential losses,” an unnamed source from the logistics industry said.