SEOUL (Reuters) - South Korean builder Hyundai Development Co 267850.KS said on Tuesday its consortium has been picked as the preferred bidder for a controlling stake in Asiana Airlines 020560.KS and would inject over $1.7 billion into the debt-ridden carrier.

FILE PHOTO: A view of the Asiana Airline's head office in Seoul August 8, 2013. REUTERS/Kim Hong-Ji

The deal would draw a line under a tumultuous period for the country’s No.2 carrier which is saddled with 9.6 trillion won ($8.3 billion) debt, as it battles rising competition from budget airlines and falling tourism traffic to Japan.

Following the announcement, shares in Asiana finished up 13% at their highest level since May, valuing the group at around $1.2 billion. Its budget carrier affiliate Air Busan 298690.KS jumped by 30% and logistics unit Asiana IDT 267850.KS rose 3.9%.

“Asiana will achieve the industry’s top-class financial health (after the deal),” Chung Mong-gyu, Hyundai Development chairman, told reporters after the deal was announced.

“We will make steady efforts to improve its competitiveness and corporate value by investing in new aircraft and services.”

The airline's top shareholder, Kumho Industrial Co 002990.KS, put its 31.05% stake up for sale earlier this year as it came under pressure from Asiana creditors to reduce debt at the loss-making carrier.

Hyundai, which formed a consortium with brokerage Mirae Asset Daewoo 006800.KS, offered nearly 2.5 trillion won ($2.2 billion) for the stake and new shares to be issued by Asiana, media reports said.

Chung did not disclose the consortium’s offer price but said it was likely to inject more than 2 trillion won of fresh capital into Asiana, and its partner Mirae Asset will pay 20% of the total acquisition costs.

The offer scuppered a rival 2 trillion won bid from a group led by budget airline JejuAir's 089590.KS parent AK Holdings Inc 006840.KS, reports said.

"Asiana Airlines will now likely have financial support and sufficient cash flow to swing to profit in the long run," said analyst Kim Se-ryeon at eBEST Investment & Securities, adding the country's No. 1 airline Korea Air Lines 003490.KS could face competitive threat.

Kumho said the Hyundai-led consortium was the “most qualified candidate to help normalize Asiana’s management and secure its competitiveness in the mid and long term”.

Hyundai, focused on housing construction, bets the deal will generate synergies for the group, as it has been expanding into shopping mall, duty free and hotel businesses in recent years.

Chung expected Hyundai to start inflight duty-free sales with Asiana as part of its efforts to create synergies.

Shares in Hyundai closed up 2% and Kumho rose 0.8%.

($1 = 1,161.2300 won)