The process of selecting a preferred bidder for Asiana Airlines’ cargo business is likely to take longer than expected, according to people in South Korea’s investment banking sector on Mar. 22. The decision, initially slated to be finalized by the end of the next month, may face delays as due diligence data has only recently become available.
There are concerns that the deal may fail to go through. With the exception of Eastar Jet, of which VIG Partners is the majority shareholder, most potential bidders appear to lack a concrete financing strategy. The government-led sale process has been structured in a way that makes it difficult for financial investors to profit, thus hindering private equity funds from participating.
For instance, the government has prohibited financial investors from co-investing with the airline. Instead, a financial investor interested in acquiring Asiana Airlines’ cargo business must first invest in a low-cost carrier (LCC) and then have the LCC bid for the cargo business. Such restrictive conditions have led to market skepticism, with concerns that this bid might follow the steps of the failed HMM deal last month.
UBS, the lead sale handler of Asiana Airlines’ cargo business, is set to select a buyer by the end of April, according to brokerage firms in Seoul. Four low-cost carriers - Jeju Air, Eastar Jet, Air Premia, and Air Incheon - submitted letters of intent (LOIs) in the preliminary bidding round on Feb. 28. T’way Air, another potential buyer, did not participate.
“Given the current pace of due diligence, with information becoming available now, concluding the deal in April seems unlikely,” said an investment banking source. “It’s not particularly surprising as mergers and acquisitions processes are generally stretched out these days.”
Korean Air submitted remedial measures to the European Commission, which included the sale of Asiana’s cargo division, last November. The European Commission approved the proposed $1.3 billion (1.8 trillion won) merger of Korean Air and Asiana Airlines under the condition that Korean Air carries out the stipulated remedies. The valuation of Asiana Airlines’ cargo division is estimated at around 500 billion to 700 billion won. The division’s revenue for the first three quarters of last year amounted to 1.354 trillion won.
Among the four contenders, VIG Partners, a private equity fund with a majority stake in Eastar Jet, is reportedly seeking a partnership with foreign capital. Air Premia, backed by JC & Partners and AP Holdings, was rumored to have aligned with Skylake Equity Partners, but the carrier has dismissed such claims. Air Incheon, owned by Socius, is not considered a proper contender because of its relatively modest capital of 7.2 billion won as of 2022. Jeju Air, the largest of the four contenders, has yet to select a financial investor.
“Since the cargo division sale is crucial for the Korean Air and Asiana Airline merger, the deal needs to move quickly, so the selling side has convinced a few low-cost carriers to participate in the preliminary bidding,” said an industry insider. “Jeju Air has formally participated in the bidding, but it’s unlikely that the carrier will actively compete.”
