Jin Air's license intact after 'nut rage' sister's scandal; shares soar

[August 17, 2018]   By Heekyong Yang

SEOUL (Reuters) - South Korea's Jin Air <272450.KS> escaped the worst of regulatory wrath on Friday when it was allowed to keep its business license in the wake of public outrage over the behavior of members of its founding family.

The country's No.2 budget carrier's license was put under review after it was found that family member Emily Cho - in the spotlight after reports of an angry tantrum earlier this year - held U.S. citizenship while serving as board director in violation of South Korean law.

Although Jin Air kept its license, it will be restricted from registering new aircraft and routes for a "certain period of time", the transport ministry said in a decision that pared initial sky-high gains for its stock.

Cho, a member of the family which controls Jin Air and parent Korean Air Lines Co Ltd <003490.KS>, provoked a storm of anger after she allegedly threw water at an advertising agency manager. The incident came four years after an infamous "nut rage' scandal in which her sister Heather delayed a flight because she objected to the way nuts were served.

Emily Cho later issued an apology but did not specify her actions.

The family's latest misconduct came amid widespread public anger over the behavior of South Korea's business and political elite, and prompted government agencies and prosecutors to launch probes into the Cho family and its businesses.

"Although the current administration would like to present their action as a measure to alleviate public anger, I do not think that should be the government's role - creating avenues for public catharsis," said Park Ju-gun, head of corporate analysis firm CEO Score.

The ministry said it will keep its restrictions in place, until Jin Air implements measures to prevent violations of aviation laws and to improve its corporate culture.

The carrier has proposed "cracking down on its top-down, authoritarian culture", increasing the number of its outside board directors, and creating a system that will protect whistleblowers, the ministry said.

Jin Air said in a statement that it welcomed the ministry's decision.

Cho Hyun-min, also known as Emily Cho, a former Korean Air senior executive and the younger daughter of the airline's chairman Cho Yang-ho, arrives at a police station in Seoul, South Korea, May 1, 2018. REUTERS/Kim Hong-Ji/File Photo

The scandal has seen Emily Cho resign from her position at the airline and her father, Cho Yang-ho, resign as co-chief executive although he remains chairman of Korean Air.

Jin Air's employees have also been vocal about their outrage and the damage to airline's reputation and on Friday, the carrier's union lambasted the founding family for "not speaking a word about the current situation."

Shares in Jin Air initially soared as much as 24 percent after news broke that its business license was intact but later pared gains to stand 9 percent higher, giving it a market value of about $620 million.

The stock is still down 28 percent from levels before the scandal broke.

"The ministry's somewhat punitive measurement will inevitably have consequences for Jin Air's business expansion but it will be for a limited time only," said Kim Ik-sang, chief analyst at BNK Securities.

"But at the same time, it will give other budget carriers the opportunity to seek business advantages," he added.

Plans to lease four Boeing B737-800 aircraft from Korean Air this year have been put on hold, pending the government's decision on its restrictions, a Jin Air spokesman.

(Reporting by Heekyong Yang, Additional reporting by Hyunjoo Jin; Editing by Edwina Gibbs)

[© 2018 Thomson Reuters. All rights reserved.]

Copyright 2018 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.  Thompson Reuters is solely responsible for this content.