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THE INVESTOR
September 26, 2018
Big Reunion

Industrials

Korean Air family under siege despite father’s apology

  • PUBLISHED :April 23, 2018 - 16:57
  • UPDATED :April 23, 2018 - 16:57
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[THE INVESTOR] The controlling family of the nation’s largest air carrier found themselves under heavy criticism April 23 with fresh allegations of misconduct emerging and another search and seizure operation -- this time at its headquarters -- despite a public apology made by the father of the two troubled heiresses a day earlier.

The customs investigators raided the head and branch offices of Korean Air in Seoul where the air carrier’s Senior Vice President Cho Hyun-min has offices, to secure evidence of customs evasion. 




Cho, also known as Emily Cho, is the youngest daughter of Korean Air Chairman Cho Yang-ho. She has been at the center of controversy after she was accused of throwing water at an advertising agency official during a meeting, sparking a flurry of accusations that her family abused their authority over their staff.

The customs service agency was raiding Korean Air offices for the second time. Last week, it confiscated evidence from residences of the owner family members, and tracked down their credit card transaction records.

Monday’s raid appears to have focused on suspicions that the family regularly smuggled luxury items by disguising them as airplane parts and office supplies. The alleged evasion of customs checks were carried out by Korean Air staff acting under the family’s orders for many years, according to anonymous sources inside the company.

The police also plans to summon Cho Hyun-min within this week to question her as a suspect of assault, according to Commissioner General Lee Chil-seong.

As the whistle-blowing and “expose” reports continued to pour out from anonymous sources and news outlets, one media outlet reported that there were suspicions of the airline using liquid containing cancer-causing agents to remove stains on passenger seats and carpets.

Amid escalating controversy, the air carrier said it has named former constitutional court judge to chair its planned compliance committee.

In the Sunday letter of apology, Chairman Cho pledged to strengthen the role of the boardroom and launch a compliance committee to “institutionally prevent” such incidents from happening, while firing his two daughters.

Along with Cho Hyun-min, Cho Hyun-ah, president of Kal Hotel Network, an affiliate of the carrier, was forced to step down.

In 2014, Cho Hyun-ah, also known as Heather Cho, was jailed for five months for ordering a Korean Air plane to return to its gate at a New York airport after she got angry over the way a pack of macadamia nuts were served in first class.

Meanwhile, the share price of Korean Air which gained 2.7 percent on April 23 afternoon, has lost about 5 percent since April, when the so-called “water rage” scandal flared up.

Some analysts said that Korean Air’s owner risk will have limited impact to the air carrier’s stock price, for the company has been enjoying a boom in cargo industry, and a growing demand for outbound travel. The company also plans to expand its Asia-Pacific routes in a joint venture with Delta Airlines by the end of this year.

Bruce Lee, founder and chairman of Zebra Investment in Seoul, however, urged major stakeholders like the National Pension Service to raise its voice to hold Chairman Cho and his family in check in their involvement in the management.

“Korean Air may suffer a limited impact because of its monopolistic presence (in the local aviation market),” he said.

“The incident represents a typical problem within chaebol’s governance structures. If the family is found guilty of violating the regulations, major shareholders like NPS should step up and strengthen monitoring of their management,” he said.

The NPS holds 12.6 percent while foreign investors hold a 17 percent stake in Korean Air, which is valued at 3.1 trillion won (US$3 billion).

By Cho Chung-un/The Korea Herald (christory@heraldcorp.com)

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