A buyout of Asiana Airlines Inc. has become a high-stakes gamble for HDC Hyundai Development Co. as the full-service airliner laden with debt overwhelming assets by nearly 1,800 percent faces yawning losses of 1 trillion won ($817.4 million) this year alone, given its meager performance in the first quarter.

The airliner with more than 90 percent of its flights grounded due to the air standstill from global virus pandemic is projected to have incurred more than 300 billion won in loss for the first quarter.

HDC Hyundai Development still in the middle of due diligence despite its pledge to close the $2 billion takeover deal by December has discovered the airliner’s operating loss could stretch beyond 300 billion won by March. Unless the virus is combated and international migration returns to normal in the first half, the airliner’s loss could exceed 1 trillion won by the end of the year.

Under the bleak outlook, HDC would hardly wish to enter the contract under the initial terms and even could be tempted to walk away even at the risk of losing the 250 billion initial payment.

HDC Hyundai Development has been consulting with McKinsey & Company for future move.

McKinsey & Co. has laid out the best- to worst-case scenarios.

“HDC Hyundai Development has been active in the due diligence early this year, but for now, the team itself is raising questions about the deal.”

Asiana Airlines has done poorly over past five years. The country’s No. 2 full-service carrier posted an operating profit of 245.6 billion won on sales of 6.5 trillion won in 2017, but its profit shriveled nearly 90 percent to 28.2 billion won despite sales of over 7 trillion won a year after. It reported an operating loss of 443.7 billion won last year, with sales down to 6.97 trillion won.

The worst was yet to come.

Analysts are even doubtful if the air business can return to normal by the third quarter.

“It seems inevitable to avoid losses in the third quarter as there’s no cue on when the outbreak will peak out,” said Choi Go-woon, an analyst at Korea Investment & Securities.

Assuming the heavily-indebted airliner could be highly risky for HDC Development as it separately faces hard times due to slump in construction business.

HDC Hyundai Development so far maintains it is committed to the deal.

Under the original plan, out of its total offer of 2.5 trillion won, 500 billion won would buy a 30 percent stake in Asiana Airlines and 1 trillion won paid out to cover the loan from Korea Development Bank.

“HDC Hyundai Development will issue 2 trillion won worth new shares, of which 1 trillion won will be spent to reduce the debt ratio of Asiana Airlines to below 1,000 percent from current near 1,800 percent. The other 1 trillion won can be spent to upgrade aircrafts and facilities. Investment capacity could lessen if losses widen, Choi said.

But the plan is too ideal, given the sad state of the airliner’s financial sheet.

The carrier already has overwhelming debt eroding its capital base.

In order to avoid its delisting, HDC Hyundai Development may have to spend entire 2 trillion won to clean up its financial state.

Asiana Airlines is under the risk of being blacklisted for delisting if it receives disclaimer opinion.

Disclaimer opinion causes a drop in the stock price and could make it difficult for the company to refinance existing debt or extend the bond maturity.

HDC Hyundai Development shares on Tuesday rose 6.27 percent to close at 18,650 won in Seoul, and Asiana Airlines 1.88 percent up at 3,520 won.

By Jin Young-tae and Lee Ha-yeon

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