* First major aviation consolidation since COVID-19

* Combined national carrier to control 60% of international routes

* Asiana brand to be eventually phased out -Korean Air spokeswoman

* Three budget carriers also to be gradually integrated -KDB

SEOUL, Nov 16 (Reuters) - Korean Air Lines Co Ltd plans to spend 1.8 trillion won ($1.62 billion) to become the top shareholder of indebted Asiana Airlines Inc , in aviation's first major consolidation since COVID-19 brought the industry to its knees. It will also be the biggest shake-up in South Korean air travel since Asiana's founding ahead of the 1988 Seoul Olympics, with the airline eventually integrated into Korean Air to create a national carrier commanding about 60% of international routes. Working together is likely to give the pair greater chance of avoiding the fate of several airlines worldwide, where virus-busting restrictions on movement and border closures have decimated passenger demand and forced carriers into bankruptcy.

The deal is also a relief for indebted Asiana which was kept aloft in September by a cash injection from creditors led by the Korea Development Bank (KDB), after top shareholder Kumho Industrial Co Ltd pulled out of a sale.

Korean Air - controlled by Hanjin Kal - said it will buy 1.5 trillion won of new Asiana shares giving it a 63.9% stake, and 300 billion won worth of Asiana's convertible bonds.

"Amid the collapse of the Asiana sales deal as well as the COVID-19 pandemic, KDB has formed a consensus with Hanjin Group to reorganise the aviation industry and pursue integration," KDB Chairman Lee Dong-gull said at a briefing on Monday.

KDB also said it will invest 800 billion won in Hanjin Kal.

To fund the Asiana deal, Korean Air said it will issue 2.5 trillion won worth of shares next year, with buyers including parent Hanjin Kal. It will use funds left over to pay off debt.

"We expect the transaction and process to be finalised by the second half of 2021," Asiana Airlines Chief Executive Han Chang-soo said in a letter to employees on Monday. There will be no "artificial restructuring" after the transaction, he said.

Hanjin Kal's top shareholder, the Korea Corporate Governance Improvement Fund (KCGI), has said KDB investment in Hanjin Kal would likely support Korean Air's current management. The fund favours replacing family-appointed executives with outsiders.

On Monday, it said it will use any measure permitted by law to oppose the plan to buy Asiana using taxpayers' money, which it said forces investors and employees to make sacrifices.

INTEGRATION

Kumho in December agreed to sell its 30.77% Asiana stake for 2.5 trillion won to Hyundai Development Co and Mirae Asset Daewoo Co Ltd. It pulled out in September as the COVID-19 outbreak prompted the buyers to seek better terms.

With Asiana now joining Korean Air, some 800 to 1,000 roles will overlap. Still, KDB aims to avoid artificial restructuring and ensure job security through natural annual decline in employee numbers, work involved in integrating the airlines, and new projects, said KDB Vice President Choi Dae-hyun.

"For the time being, Korean Air and Asiana will operate as independent affiliates, but once integrated, Asiana's brand will be phased out," a Korean Air spokeswoman told Reuters.

Combining South Korea's two biggest carriers would create the world's 15th largest airline based on the industry measure of kilometres flown by paying passengers, according to 2019 data from the International Air Transport Association. That represents a jump from 28th for Korean Air and 42nd for Asiana.

KDB also aims to integrate the airlines' budget affiliates Jin Air Co Ltd, Air Busan Co Ltd and Air Seoul, said Choi.

"Consolidation in South Korea makes a lot of sense. Before COVID-19 there were too many competitors and particularly now," said Singapore-based independent aviation analyst Brendan Sobie.

Asiana's share price soared as much as 29.8% in Monday trade, while that of Korean Air rose 15.2% and Hanjin Kal rose 8.2%. The benchmark KOSPI was up 1.9%.

($1 = 1,108.2500 won) (Reporting by Heekyong Yang and Joyce Lee; Additional reporting by Jamie Freed in Sydney; Editing by Christopher Cushing)