Four South Korean low-cost airlines (LCCs), including Jeju Air Co., joined in the preliminary bidding for the sale of the country‘s second-largest air carrier Asiana Airlines Inc.’s cargo business. Excepting Jeju Air, all the airlines are controlled by private equity funds (PEFs) and it is highly possible that they will form a consortium via a partnership during the bidding process.

According to aviation industry sources on Wednesday, UBS, the lead manager for the sale of Asiana Airlines’ cargo business, held the preliminary bidding on the same day, with a total of four bidders submitting their letters of intent (LOIs) for acquisition, including Jeju Air, Eastar Jet Co., Air Incheon Co., and Air Premia Co.

The seller plans to provide due diligence opportunities to major candidates starting from March 2024 after announcing a shortlist. It is expected to hold the main bidding a month later to select a preferred bidder and sign a share purchase agreement (SPA) in June.

Jeju Air received favorable evaluations after entering the cargo business by introducing its own cargo aircraft in 2022 and adding a second aircraft a year afterwards. Given its market position as the top LCC in the country, Jeju Air is viewed as the most stable of all the candidates.

The remaining three airlines owned by PEFs are expected to secure strategic investors (SIs) or financial investors (FIs) in the process of capital procurement. Eastar Jet is controlled by VIG Partners, Air Incheon by Socius PE, and Air Premia by JC & Partners Co.

The bidders also reportedly submitted an English translation of their LOIs. “ European Union (EU) competition authorities will be involved in the sale alongside their Korean counterparts and will be looking at the candidates to see if they can address competition concerns,” an aviation industry insider said.

The sale price for the cargo business is estimated to be in the range of 500 billion to 700 billion won ($524.35 million) but is still being debated in the market. As the lead manager did not provide sufficient information for bidders to decide on whether to participate, potential buyers are expected to conduct due diligence to assess a reasonable price. But the extent to which internal information will be disclosed during the due diligence process is still uncertain, making it a challenge for some candidates to decide whether to complete the process.

Meanwhile, the companies that benefit from the sale of Asiana Airlines‘ cargo business and the return of some European routes, which EU competition authorities have proposed as a condition for the merger of Asiana Airlines and Korean Air Lines Co., are expected to gain an advantage in the competition among LCCs moving forward.

Korean Air Lines plans to merge its subsidiary Jin Air Co. with Asiana Airlines subsidiaries Air Busan and Air Seoul Co. into a larger LCC when the bigger merger with Asiana Airlines is completed. In this regard, the industry could be reorganized into larger LCCs that can secure cargo freight as well as fly mid- to long-haul routes.

By Cho Yun-hee, Na Hyun-joon, Choi Hyun-jae, and Yoon Yeon-hae

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