* Shares rise sharply on announcement
* Holding co shares up over takeover battle expectations - analyst
* Cho family plagued by scandal after "nut rage" incident
* Only son expected to take over - analysts
Korean Air patriarch, chairman and CEO Cho Yang-ho died of a chronic illness on Monday just weeks after shareholders ended his 27-year tenure on the board of the country's biggest carrier due to perceived leadership failings.
Shares of the family-controlled airline and Hanjin Kal , the holding company for parent Hanjin Group, jumped on news of the death, as investors push for better governance under new management or a younger generation of the Cho family.
The death also raised the possibility of a bidding war over the 70-year-old patriarch's stake in the holding firm, said Um Kyung-a, an analyst from Shinyoung Securities.
"Of course, his family will try to inherit his shares, but that can take time and money ... So that opens a window for expectations about a takeover battle," Um said.
Cho holds a 17.8 percent stake in Hanjin Kal that controls the airline conglomerate. Cho, his relatives and the family's academic foundations own a total 29 percent of the holding firm. Cho's only son, company President Cho Won-tae, is widely seen as his likely successor.
A South Korean activist fund is the second-biggest shareholder of Hanjin Kal after the Cho family and recently boosted its stake to 13.5 percent, vowing to take a role in management to fix poor governance blamed on Cho and his family.
Korean Air has been plagued by scandals involving founding family members in recent years, culminating in the indictment of Cho in 2018 on charges of embezzlement and breach of trust. Cho denied the charges.
The troubles began after Cho's eldest daughter, Heather Cho, made headlines in 2014 when she lost her temper over the way she had been served nuts in first class and ordered the Korean Air plane to return to its gate at a New York airport.
The "nut rage" incident severely tarnished the carrier's image and generated derisive international headlines for months. Subsequent scandals involving Cho's daughters only deepened concerns around the family's leadership.
Shareholders forced Cho off the board in a landmark vote on March 27, making him the first founding family member of any South Korean corporate giant to be ousted in such a manner.
The vote added fresh momentum to growing shareholder activism in Asia's fourth-biggest economy, long dominated by family-run business empires accused of ignoring minority investors.
Korean Air shares rose as much as 8.2 percent on Monday after the announcement of Cho's death, their biggest percentage gain since Nov. 14 last year. Hanjin Kal gained as much as 24.4 percent to a more than two-month high, while the broader market was flat.
Before his family's high-handedness became an object of public ridicule, Cho was regarded as a paragon of South Korean business acumen.
After taking control of the company from his father, Cho gained a reputation for daring and smarts as he built the airline into one of Asia's biggest, operating 166 aircraft with international flights to 111 cities in 43 countries.
During the Asian financial crisis in the late 1990s, he saw an opportunity to expand and bought 27 Boeing planes. A few years later, as the global airline industry reeled from the Severe Acute Respiratory Syndrome crisis, he placed a massive order for Airbus' A380 planes in 2003.
He died from a chronic ailment in a Los Angeles hospital early on Monday Korean time, the airline said without providing further details.
A company official said Cho had surgery for lung disease a while ago and his condition had worsened over the past two years.
Even so, his condition was not publicly known and his death came as a surprise to the South Korean public. Only last year he had carried the torch for the Pyeongchang Winter Olympics.
His name was the most-searched keyword on South Korea's top internet portal on Monday.
Korean Air in a statement paid tribute to his enthusiasm and work ethic, but conceded that "not everything went well", a reference to the shareholders' vote to unseat him from the board.