A court on Tuesday rejected an injunction request against Korean Air’s plans to take over Asiana Airlines, in the latest step giving a boost to the high-profile acquisition deal involving South Korea’s two national flag carriers.

“The case involving issuance of new shares is in accordance with the commercial law and Hanjin KAL’s articles of incorporation and has been done within necessary boundaries to achieve the goal of managing a consolidated airline,” the Seoul Central District Court said in a ruling.

The court also said the issuance of new shares is not to preserve the position of the current management of the company, rejecting the argument by private equity fund Korea Corporate Governance Improvement (KCGI), which leads an opposition alliance within Hanjin KAL -- the holding company of Hanjin Group -- and which filed the now-defunct injunction request to put a hold on the deal.

The court’s decision cleared the first legal hurdle for Korean Air in pursuing the takeover of its longtime rival Asiana – a move that it is believed will form one of the world’s top 10 airlines, boasting a fleet of 259 aircrafts and combined assets of 40 trillion won ($36.1 billion).

Following Tuesday’ ruling, Hanjin Group said it will “put their best efforts into overcoming the crisis, strengthening competitiveness and ensuring job stability.”

The state-owned Korea Development Bank, Asiana’s main creditor, also welcomed the ruling and called on KCGI’s side to support the deal.

The latest development is seen as a win for Korean Air CEO Cho Won-tae and KDB. Both have argued that the deal between the two airlines is necessary for the aviation industry here to overcome the current crisis brought on by the COVID-19 pandemic.

It, however, means a blow to the KCGI-led three-way alliance that owns a 46.71 percent stake in Hanjin KAL consisting of Bando Engineering & Construction, as well as Cho Hyun-ah, who is the current chairman’s sister.

In a statement after the ruling, KCGI said it “regrets the court’s decision to strike down the injunction” and expressed concern that the ruling would have “a negative impact on the rules of the capital market.”

The KCGI alliance has on multiple occasions opposed the current deal, and labeled it as a move to preserve the position of the current management.

In a rebuttal, Korean Air has also accused KCGI of “putting its profit before 100,000 jobs” and warned that the injunction request could lead to a large number of job losses if accepted.

In a state-backed deal, Korean Air plans to raise 2.5 trillion won through issuing new shares next year with the support of KDB.

The plan says that KDB will invest 500 billion won in Hanjin KAL through new shares issued by third-party allotment as well as purchasing 300 billion won worth of the company’s exchangeable bonds -- a total of 800 billion in funding.

The next step will see Hanjin KAL acquire 730 billion won of new stocks issued by Korean Air, on top of the 29.27 percent of Korean Air it already owns.

Lastly, Korean Air will buy 1.5 trillion of Asiana’s new stock and 300 billion won worth of Asiana’s perpetual bonds, becoming the largest stockholder of Asiana with a 63.9 percent stake in the end.

But challenges still lie ahead for Korean Air before the megadeal is fully completed.

KCGI is preparing another attack by demanding an emergency shareholders meeting, aiming to add a member to the board of directors.

Protests from the labor unions also remain strong. Four of the multiple labor unions of the two airlines have opposed the merger, calling for the plan to be reviewed from square one with representatives for the laborers.

Conflict among employees of the airlines is also escalating, as some labor unions have expressed support for the merger.

Korean Air must also aggressively seek ways to secure more funds in preparation for a liquidity crisis that may befall it amid the COVID-19 pandemic.

Even after securing funds through issuing new stocks and receiving support from KDB, they may not be well enough prepared for the amount of debt the airline must pay within one year, amounting to 5.2 trillion won.

Korean Air has so far been undertaking various sell-offs of its assets, including a leisure development company and airport bus service.

Its move to sell a plot of land in Songhyeon-dong, central Seoul, however, remains deadlocked in conflict with the Seoul Metropolitan Government.

Korean Air also requires approval from antitrust authorities in at least four other territories for its planned acquisition -- the United States, European Union, China and Japan -- according to industry sources and the Fair Trade Commission.

Once Korean Air reports the business consolidation to the Korean FTC by around June next year, it is also to review the case and decide to approve or disapprove the move by around July.

Following the court’s decision, KDB is expected to deliver 500 billion won to Hanjin KAL by Wednesday, upon which Hanjin KAL will issue 300 billion won in exchangeable bonds.

By Friday, Korean Air will send 300 billion won in deposits for the contract to buy Asiana Airlines, and acquire an equal amount of convertible bonds by the end of this month.

By Yim Hyun-su (hyunsu@heraldcorp.com)