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* KCGI is No.2 shareholder of parent of Korean Air Lines
* KCGI CEO says local airline industry needs restructuring
* S.Korea's No.2 airline up for sale, initial bids on Sept. 3
* Asiana shares jump as much as 26%, end up 11% (Recasts with Asiana share price, adds other details)
SEOUL, Aug 19 (Reuters) - South Korea's activist fund KCGI, the second-largest shareholder in the parent company of Korean Air Lines Co Ltd, said it was looking to buy a controlling stake in Asiana Airlines, helping send shares of the carrier up 26%.
KCGI Chief Executive Kang Sung-boo said the fund is in talks with several local and overseas entities to form a consortium to bid for the 31.05% stake in Asiana Airlines, which has been put up for sale by top shareholder Kumho Industrial.
The stake was worth $282 million at Friday's close.
Kang's comment comes as the local airline industry grapples with several challenges, including rising competition from budget carriers, a U.S.-China trade war hitting cargo demand and a Korea-Japan diplomatic row hurting travel.
Korean Air Lines and Asiana Airlines swung to operating losses for the April-to-June quarter, from a year earlier.
Asiana Airlines is expected to receive initial bids on Sept. 3, followed by binding bids in October, Kang said.
Credit Suisse is managing the deal.
An Asiana spokesman declined to comment.
Kang said the country's full-fledged carriers need to restructure and consolidate to reduce competition and heavy debts. "I believe the entire airline industry in Korea is in crisis," Kang told Reuters over the phone.
Shares of Asiana Airlines, South Korea's second-largest carrier after Korean Air Lines, ended up 11% after jumping as much as 26% during trade. Its budget airline affiliate Air Busan ended up 26%, in a broader market that was up 0.7%.
Analysts said shares of the affiliate were also buoyed by the possibility that creditors could look to sell stakes in Asiana Airlines separately from other assets like Air Busan .
Asiana's total debt was at 9.6 trillion won ($8 billion) as of end-June, versus 7.1 trillion won as of end-2018. The carrier's market value is at about $1 billion.
There are doubts whether KCGI has the financial capability to bankroll the deal, and even if it does, whether Asiana's creditors would be comfortable with the sale to a fund with little experience in the airline industry, analysts said.
KCGI has hiked its stake in Hanjin Kal, the parent of Korean Air Lines, fueling market expectations about a battle to control the family-owned group following the death of patriarch Cho Yang-ho in April.
But Delta Air Lines, which runs a joint venture of Korean Air Lines, bought a 5.13% stake in Hanjin Kal, giving a boost to the management of South Korea's top carrier as it seeks to thwart KCGI's challenge.
Kumho has been looking to offload its stake in the debt-laden Asiana, after the conglomerate came under pressure from Asiana's creditors including state-run Korea Development Bank.
South Korea's chip-to-refinery conglomerate SK Group and retail-focused Aekyung Group, which also has a stake in budget carrier Jeju Air, were named as potential suitors for Asiana by local media, but the two firms did not publicly say whether they were interested in the bidding or not. ($1 = 1,209 won) (Reporting by Hyunjoo Jin; Editing by Shri Navaratnam and Himani Sarkar)