Asiana steps up pressure on Gategroup to cancel 30-yr contract

South Korea's Asiana Airlines Inc. has stepped up its pressure on Gategroup to nullify its 30-year in-flight meal contract with the Swiss catering service provider, accusing the latter's top management of what the country's antitrust body concluded was a clandestine dual contract.

In March of this year, Asiana filed criminal charges against four former and current top managers of Gategroup with the Seoul Central District Prosecutors’ Office, according to sources with knowledge of the matter on Sunday.

Xavier Rossinyol, who had headed Gategroup as chairman between 2015 and late 2021, and ex-Asia Pacific Chairman Jann Fisch are among the four accused.

The accusations were filed after Asiana lodged a complaint against the 30-year supply contract with a Seoul court in January of this year. Such legal actions are viewed as an effort to minimize potential losses ahead of its merger with its bigger rival Korean Air Lines Co.

Asiana claimed that the 30-year exclusive contract, inked in 2016, was invalid since it was sealed on the condition of Gategroup providing financial support worth 160 billion won ($130 million) to its troubled parent Kumho Group through the purchase of non-interest bearing bonds.

The airline also found fault with the exclusion of Asiana's then top management and board of directors from the negotiations for the exclusive supply deal.

Therefore, it argued that Gategroup's top management had conspired with Kumho Group, including its former Chairman Park Sam-koo, to win the contract, which prosecutors said could incur more than 250 billion won in losses for 30 years to Asiana.

In 2020, the Korea Fair Trade Commission concluded that the exclusive in-flight meal contract between Asiana and Gategroup constituted unfair trade and accused Kumho's top management, including ex-Chairman Park, of alleged breaches of trust.

Korean prosecutors said that the 30-year supply rights had been sold for 133.3 billion won, about one-fourth of the estimated value of about 500 billion won.

The 2016 agreement between Kumho and Gategroup also includes guaranteeing a certain amount of profits to Gate Gourmet every year through 2047, which could cause Asiana more than 250 billion won in cumulative losses.

The ex-chairman Park was accused of signing the loss-making contract in order to attract the 160 billion won funding in bonds with maturities of up to 20 years, so that he could use the money to take back control of Kumho Industrial Co., Asiana's largest shareholder, from creditor banks.

If a court ruling on Park, due in June, is made in favor of Asiana, the airline will likely further ratchet up its pressure against Gategroup.

Their 30-year supply deal and profit guarantees were revealed in the process of prosecutors' probe of Kumho's Park over the alleged breach of trust, following the antitrust body's ruling.

Further details of the contract were disclosed in 2019 when Gate Gourmet Korea, a joint venture between Gate Gourmet Switzerland and Asiana, filed an arbitration suit in the International Chamber of Commerce (ICC) in Singapore to urge Asiana to pay the guaranteed net profits.

The ICC in February 2021 ruled in favor of Gate Gourmet Korea, saying Asiana must pay the guaranteed profits, as well as damages from the delayed payment.

Accordingly, Asiana recently paid 35.8 billion won to Gate Gourmet but it also started legal proceedings to reverse the ruling.

Singapore's sovereign wealth fund Temasek owns 50% of Gategroup.

"Temasek is taking as much care of meeting ESG (environmental, social and governance) standards as achieving target returns," said an investment industry official.

"Now that executives of a company, in which it has a controlling stake, may face criminal charges, Temasek is keeping a close watch on this case." 

The $1.5 billion merger between Korean Air and Asiana is pending approval from the US, EU, Japan, China, UK and Australia. 

Write to Jun-Ho Cha at chacha@hankyung.com
Yeonhee Kim edited this article