Korean Air faces probe over unfair business practice following fallout from 'water rage' scandal

Korean Air's headquarters in Seoul. The airline is being investigated by South Korea's antitrust watchdog over alleged unfair business practices.
Korean Air's headquarters in Seoul. The airline is being investigated by South Korea's antitrust watchdog over alleged unfair business practices.PHOTO: EPA-EFE

SEOUL (THE KOREA HERALD/ASIA NEWS NETWORK) - The scandal engulfing embattled South Korean air carrier Korean Air Lines has spread into an investigation by the nation's antitrust watchdog into the group's alleged unfair business practices.

It is the latest line of investigations by the authorities sparked by allegations that Cho Hyun Min, a senior vice-president at the country's largest airline, threw water in an advertising agency employee's face at a business meeting.

"We started an investigation (into Korean Air) on Friday," the Fair Trade Commission (FTC) said Tuesday (April 24). "A total of 30 investigators are currently on site looking into charges related to transit duties of in-flight goods and the owner family's making unfair profits."

Making unfair profits refers to when a company trades with its owner family or an affiliate owned by the owner family at a lower price or awards contracts solely to the affiliate, according to the FTC.

This is not the first time the FTC has investigated the airline regarding in-flight goods.

Earlier in 2016, the commission imposed a total of 1.4 billion won (S$1.72 million) of penalties on Korean Air and its two affiliates, Cybersky and Uniconverse, for providing profits to the owner family through unfair internal trading.

The FTC had said that while Korean Air made its employees work on online commercials for most of its in-flight goods and all the profits went to Cybersky and Uniconverse, whose stakes were wholly owned by its chairman Cho Yang Ho's son and two daughters.

 
 
 
 

On the same day that the FTC launched its investigation, the Seoul police began an investigation into Lee Myung Hee, the wife of Chairman Cho.

Seoul police said it had received complaints that she frequently verbally and physically abused employees.

The investigation began after a worker involved in Lee's house remodelling work claimed that Lee had forced him to kneel down, slapped him in the face and kicked him in the knee.

Another video exposed by local media outlets late Monday (April 23) shows a woman, thought to be Lee, shaking her finger at employees and aggressively pushing a female employee working on construction to extend Incheon Hyatt Hotel, an affiliate of Hanjin Group, which is also the parent company of Korean Air.

The video soon went viral while Korean Air officials said they could not officially identify the person in question.

Amid continued disclosure of the Cho family's alleged abuse of power, public criticisms continued to spread, with critics saying how Cho's family controls the group with investments equal to only 11 per cent of the group's total market value.

Cho's family owns a total of 29 per cent stake of Hanjin Kal, the holding firm of Korean Air, according to Financial Supervisory Service.

The 29 per cent stake corresponds to 360 billion won, which is only 11 per cent of Korean Air's total market value of 3.2 trillion won.

Market watchers have raised the possibility that shareholders could exercise their rights to recover the company value and to normalise management as the owner family continues to diminish the company value through improper behaviour.

Currently, the National Pension Service (NPS) owns a 12.45 per cent stake and an 11.81 per cent stake of Korean Air and Hanjin Kal respectively.

"As the second-largest shareholder, the NPS should not be a bystander but it should ponder over whether to oppose the management return by sons and daughters of owners or how to blame Korean Air which loses the nation's image," said Representative Lim Jong Sung from the ruling Democratic Party.

The burgeoning scandal has also reignited debate over a need for South Korea to adopt a stewardship code, in which management must respond seriously to demands from activist shareholders. When adopted, institutional investors can prevent management from taking decisions or strategies by actively expressing their views.

"Nothing is yet confirmed with respect to the adoption of the stewarding code. Shareholder activities are now limited to exercising voting rights," said an official from the NPS.