Jeju Air Pushed Out Reluctantly, Still Lukewarm
Raising Nearly 2 Trillion Won Acquisition Cost Also a Problem
Air Premia and Eastar Air May Face Two-Way Battle
Korean Air and Asiana Airlines held a board meeting on the 30th, which will be the biggest turning point in their merger. The photo shows Asiana Airlines headquarters in Osoe-dong, Gangseo-gu. Photo by Yongjun Cho jun21@
Four domestic low-cost carriers (LCCs) have taken the lead in acquiring Asiana Airlines' cargo division. However, due to the hefty price tag, each company showed significant differences in their acquisition intentions. While some companies are actively preparing funds, the selection process is expected to be challenging as eligibility must be separately assessed, including securing an Air Operator Certificate (AOC).
According to industry sources on the 7th, four LCCs?Jeju Air, Air Premia, Air Incheon, and Eastar Jet?were selected as qualified candidates (shortlist) by the sales agent managing the sale of Asiana Airlines' cargo business. The most proactive parties are Air Premia and Eastar Jet.
Air Premia reportedly showed strong determination from its management, including forming a task force (TF) related to the acquisition. This reflects the intentions of its major shareholder, private equity fund JC Partners, which holds a 35.3% stake. An aviation industry insider explained, "Since JC Partners is a financial investor (FI) holding shares in Air Premia, acquiring the cargo division before exit and expanding its scale as much as possible could be part of their strategy."
However, the situation is not easy. Air Premia posted its first profit in the third quarter of last year after six years since its establishment. It is aggressively expanding its business by adding long-haul routes and planning to acquire two more aircraft. There is a perception that it does not have sufficient capacity to acquire Asiana Airlines' cargo division, which is valued at over 1.5 trillion KRW.
Eastar Jet is expected to secure funding from its 100% shareholder, private equity fund VIG Partners. To this end, it is promoting the establishment of a large blind fund (a fund without predetermined investment targets), which has already attracted about 500 billion KRW. VIG Partners also utilized a blind fund when acquiring Eastar Jet last year. However, among the shortlisted companies, Eastar Jet is the only one without a cargo Air Operator Certificate (AOC). It remains uncertain whether it can obtain AOC approval from the Ministry of Land, Infrastructure and Transport before the European Union (EU) Commission's final review of Korean Air's acquisition of Asiana Airlines at the end of the year.
Industry insiders predict that the acquisition battle's success is uncertain because few qualified companies have strong acquisition intentions. Jeju Air is particularly notable in this regard. Jeju Air's management has reportedly expressed a negative stance on acquiring Asiana Airlines' cargo division multiple times. As of the third quarter of last year, Jeju Air's cash assets stood at around 350 billion KRW, with a debt ratio reaching 473%. The parent company, the AK Group, is also in a difficult situation. AK Holdings, the holding company of AK Group, borrowed 50 billion KRW last month from KB Securities using a 9.67% stake in Jeju Air as collateral. Including other affiliates such as AKS&D, the total amount borrowed against Jeju Air shares is estimated at 313 billion KRW.
Jeju Air already holds a 10.7% share of the domestic air cargo market (based on total domestic cargo in 2023). Acquiring Asiana Airlines' cargo division could trigger a corporate merger review by the Korea Fair Trade Commission. An industry insider said, "Considering the management's intentions, this is not the right timing for Jeju Air to acquire Asiana Airlines' cargo division," adding, "Ultimately, Jeju Air may only play a 'supporting' role to boost the acquisition competition."
Air Incheon has the advantage of being a cargo-only airline, but its small scale is expected to make fundraising difficult. An airline official commented, "Rather than a fierce competition among four companies as the government expected, it may turn into a two-horse race between Air Premia and Eastar Jet, resulting in low enthusiasm."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
