Hanjin Group Chairman Cho Won-tae, who was reelected as executive director of Hanjin KAL over the objections of many, including his own sister, faces the challenge of proving his leadership capabilities by reviving Korean Air at a time when it is devastated by the COVID-19 pandemic amid ongoing management disputes.

On Sunday, Cho said in a statement that the firm will “focus all its capabilities” and “make painstaking self-rescue efforts” to overcome the fallout from the new coronavirus.

South Korea’s airlines have been hit hard with around 180 countries imposing travel restrictions in an effort to curb the spread of the virus. Korean Air has cut more than 80 percent of its international capacity. Korean Air’s sales this year are predicted to drop 30 percent on-year, according to credit rating agencies.

Cho said he plans to “consult with the board of directors to further strengthen the company’s (financial) structure” by expanding additional capital. This is in addition to the previously announced sale of idle assets such as the site in Songhyeon-dong, central Seoul.

Improving Hanjin Group’s financial structure is a major task for the chairman if he is to prevent future attacks, as an anti-chairman coalition continues to raise questions about the group’s financial structure.

Hanjin is reviewing sales of the Grand Center in Los Angeles and the Grand Hyatt Incheon in addition to the site in Songhyeon-dong and Wangsan Leisure Development, operator of the Wangsan Marina resort in Incheon.

Cho also needs to prepare for a second round of tug-of-war against his sister Hyun-ah over management control.

During Friday’s shareholders meeting, he succeeded in securing his executive director position at Hanjin KAL with the approval of 56 percent of shareholders.

But the coalition comprising the heiress, KCGI and Bando E&C, the largest and second-largest shareholders of Hanjin KAL, said the results of the shareholders meeting would not influence their future course of action.

The alliance is expected to challenge Cho’s control at next year’s shareholders meeting or at an extraordinary shareholders meeting that may be convened this fall. The three coalition partners have signed a contract agreeing to jointly hold a 32.06 percent stake in Hanjin KAL for the next five years.

The anti-chairman coalition and Cho Won-tae are expected to buy additional shares in preparation for the next meeting. The alliance currently controls 42.13 percent of the company, compared with Cho’s 41.4 percent.

With Cho Hyun-ah’s anti-chairman coalition having acquired more stock in recent months, experts say it is now a race to see which side is the first to obtain a controlling 50 percent stake in Hanjin KAL.

“Bando, which used to be the third-largest shareholder, has stepped up as the second-largest shareholder by using its capital to secure a 16.9 percent stake in Hanjin KAL. The largest shareholder, KCGI, has also increased its stake to 18.74 percent by purchasing a little more last week, to build up the coalition’s body,” said business professor Hwang Yong-sik from Sejong University.

“(It is because) whichever side secures above 50 percent stake in Hanjin KAL first will secure its position for the leadership,” he added.

Market experts say the coalition can hold more than a 45 percent stake if it combines its stakes with those of a coalition of minority shareholders of Hanjin KAL, who together own a 1.5 percent stake, as well as Timefolio Asset Management, which holds 2.21 percent.

The sibling feud has escalated in the months since former Chairman Cho Yang-ho died suddenly in April last year. Hyun-ah said Won-tae did not abide by the late chairman’s wishes to “harmoniously run the company between siblings.”

By joining hands with KCGI and Bando E&C, she has secured a total stake of 31.98 percent, as of last year.

Both KCGI and Bando have acquired additional shares in recent months, but under the commercial law shareholders could only exercise their voting rights at last week’s meeting based on the shares they had acquired before Dec. 26.

The Seoul Central District Court on Tuesday rejected an injunction filed by the anti-chairman coalition, seeking permission for Bando to exercise voting rights at Friday’s meeting over a 3.2 percent stake it had recently acquired. As a result, the coalition controlled only 28.98 percent of Hanjin KAL.

In addition, the National Pension Service on Thursday said it would use its 2.9 percent stake to support Cho Won-tae, giving the current chairman’s supporters control over 40.39 of Hanjin KAL.

Cho Won-tae’s mother, Lee Myung-hee, and his younger sister, Cho Hyun-min, back him. So does Hanjin KAL’s third-largest shareholder, Delta Air Lines, as well as Kakao, GS Caltex, family members and Korean Air executives.

Friday’s shareholders meeting helped Cho Won-tae avoid the worst-case scenario of a leadership change -- at least for now.

For Hanjin KAL’s outside directors, all five candidates suggested by the current Hanjin KAL board -- including former Financial Services Commission Chairman Kim Seok-dong -- were approved, while all four candidates proposed by the anti-chairman coalition failed to gain majority approval.

Along with Cho, executive director candidate and Korean Air Vice President Ha Eun-yong, proposed by the current chairman’s side, was also elected.

The shareholders also agreed to change Korean Air’s standing rule to allow the appointment of the executive director upon 50 percent approval. This will make it easier for Cho Won-tae to get reelected as Korean Air executive director next year. His father, late Chairman Cho Yang-ho, had lost his executive director seat last year for failing to receive a two-thirds majority under the former rule. 

By Shin Ji-hye and Kim Da-sol
(shinjh@heraldcorp.com) (ddd@heraldcorp.com)