Korean Air Takes a Breather This Year... Plans to Sell In-flight Meal and Ticketing Businesses, What's Next?

Pursuing Sale to Private Equity Fund Worth Over 1 Trillion Won
Total Borrowings This Year Reach 4 Trillion Won... Temporary Relief Through Government Support, Capital Increase, and Asset Sales

On the 2nd, amid the impact of COVID-19 causing significant damage to the airline industry, employees are preparing in-flight meals in a quiet atmosphere at the Korean Air in-flight meal center. Photo by Moon Honam munonam@

[Asia Economy Reporter Yoo Je-hoon] Korean Air, which faced a liquidity crisis due to the novel coronavirus disease (COVID-19) pandemic, has secured enough cash to sustain operations until the end of this year. This comes as the company moves forward with a 1 trillion won capital increase, government emergency fund support, and accelerated sale of its 'prime businesses'?the in-flight meal and in-flight sales (duty-free) divisions.

According to the aviation industry on the 7th, Korean Air held a board meeting that afternoon to discuss the ongoing sale plan for the in-flight meal and in-flight sales division. The buyer is the private equity fund (PEF) Hahn & Company. Prior to this, Hanjin Group reportedly explored acquisition interests primarily from several PEFs for the sale of the in-flight meal and in-flight sales division.

The in-flight meal and in-flight sales division is known within Korean Air as the 'golden goose' that generates cash. Korean Air supplies in-flight meals to over 30 global airlines, including itself, with annual sales reaching around 100 billion won and an operating profit margin of 20-30%, which is considered solid performance. The in-flight sales business also recorded sales of 160 billion won last year, making it one of the representative profitable businesses. Accordingly, the industry estimates the sale price of the in-flight meal and in-flight sales division to be about 1 trillion won.

This division sale is expected to provide Korean Air some breathing room amid the crisis it faces this year. Korean Air has approximately 4 trillion won in borrowings that must be repaid or refinanced within the year. It had previously secured 1.2 trillion won in support from KDB Industrial Bank and the Export-Import Bank of Korea, 1 trillion won through a capital increase, and the government has agreed to inject an additional 1 trillion won via the Industrial Stabilization Fund, raising about 3.2 trillion won. With additional funds from the sale of the in-flight meal and in-flight sales division, Korean Air will be able to secure the minimum necessary funds by year-end. Furthermore, if the sale of the Songhyeon-dong site in Jongno-gu and shares of Wangsang Leisure Development Co., Ltd. are completed, Korean Air’s self-rescue plan will be finalized.

However, since the COVID-19 crisis is unlikely to be resolved quickly, there is analysis that further asset sales may continue. In fact, international civil aviation organizations such as the International Air Transport Association (IATA) expect it will take at least 1 to 2 years to recover demand to pre-COVID-19 levels.

Korean Air also conducted business restructuring and asset valuation through Credit Suisse (CS) and others. This included the pilot training center, the aerospace business division responsible for aircraft maintenance (MRO), the mileage business division, as well as the in-flight meal and in-flight sales division, which is currently up for sale.

An industry insider said, "MRO, mileage businesses, and aircraft are core assets essential to the aviation industry, so they are likely to be retained as a 'last resort.' Although the cargo sector has been holding up relatively well recently, it will take time for passenger demand to recover, so non-core asset sales or securitization are expected to continue steadily."