Local businesses to acquire Air Busan with Korean Air-Asiana merger in limbo

Busan-based businesses, including the city government, are pushing to acquire Air Busan, a subsidiary of Asiana Airlines. The coalition aims to purchase Asiana's stake in the airline.

An Air Busan aircraft flies over planes from Korean Air and Asiana Airlines at Incheon International Airport on April 24. [YONHAP]

Busan-based businesses are pushing to acquire Air Busan, a subsidiary of Asiana Airlines, as the proposed merger between Asiana and Korean Airlines remains stagnant.

The southern port city of Busan and its nearby businesses are championing the pitch, which highlights Air Busan's central contributions to regional economic development, particularly as the designated key airline of a new airport to be built on the city's Gadeok Island.

The Busan city government, the Busan Chamber of Commerce & Industry and seven regional enterprises have officially declared their intent to form a task force (TF) dedicated to smoothing a separate sale of Air Busan. The financially troubled Asiana Airlines currently holds the largest stake in Air Busan at 41.9 percent, with Busan and other businesses collectively owning 16.11 percent. Their proposal would untangle Air Busan from Asiana and open the door for acquisition by another entity.

“We will establish the TF within the month and formally approach [Asiana's main creditor] Korea Development Bank by year-end,” officials from the Busan city government and the Busan business chamber confirmed to the Korea JoongAng Daily Tuesday. This announcement marks the region's first official stance on the matter.

Media reports suggest that the TF is considering a block deal strategy in which it would acquire Asiana's stake in Air Busan if the KDB were to greenlight the separation and sale. Under the proposed plan, which would require an injection of 200 billion won ($150 million), construction company Dongil would purchase Asiana's entire stake and become Air Busan's largest shareholder.

Korean Air is still making efforts to acquire Asiana Airlines. The merger, proponents have claimed, would bring forth a grand, unified low-cost carrier (LCC) encompassing Korean Air's subsidiary, Jin Air, and Asiana's subsidiary airlines, Air Busan and Air Seoul.

But as the merger's discussions continue past their three-year mark, Air Busan finds itself grappling with intensified challenges. Unlike more assertive domestic LCCs which are expanding operations, the Asiana subsidiary is facing restrictions on its route expansion, workforce enhancement, and fleet modernization.

Beyond financial considerations, the Busan community has a vested interest in Air Busan's future. The TF envisions Air Busan playing a pivotal role as the key airline at the Gadeok-do International Airport, which is set to open in 2029. The airport's success intertwines with the city's future, particularly with its bid to host World Expo in 2030.

“The divestiture of Air Busan is not a new topic,” said an aviation industry insider who requested anonymity. “However, considering the Hanjin Group Chairman's previous remark on an Incheon-based hub centered around Jin Air and the current government's focus on aviation policies in the greater capital region, the prospect of bringing the headquarters of the unified LCC to Busan appears less optimistic. This has led to renewed discussion following the recent Asiana board meeting.”

Despite the community's hopes, industry insiders express skepticism about the likelihood of Air Busan's separation and sale at this stage, as Korean Air's reluctance to detach Air Busan from Asiana, coupled with the KDB's stance to address LCC issues post-merger, adds complexity to the situation.

Air Busan's stock responded positively to the news, closing at a 6.89 percent rise to 2,870 won on the trading market on Tuesday compared to the previous trading day.

BY SEO JI-EUN [seo.jieun1@joongang.co.kr]