Seoul-based conglomerate Hanwha Group has created a stir in the heavily congested low-cost carrier (LCC) market through its sizable equity investment in not-yet-licensed provisional airliner.

The group’s defense and aircraft engine parts unit Hanwha Techwin Co. and brokerage unit Hanwha Investment & Securities Co. reportedly completed investment of 16 billion won ($14.12 million) in KAIR Airlines based in Cheongju in central South Korea. A high-ranking aviation industry official who asked to be unnamed said on Thursday that the investment secured nearly 20 percent stake in KAIR Airlines.

Hanwha’s latest investment in the local budget carrier is seen as a prelude to its direct entrance to the domestic LCC market, raising concerns that its possible headway would further crowd the already competitive local LCC market currently estimated at 2.6 trillion won ($2.3 billion) based on yearly revenue.

Presently, Hanjin Group, which controls the country’s flag carrier Korean Air, runs low-cost carrier Jin Air Co., and Kumho Asiana Group, parent of Asiana Airlines, operates budget carriers Air Busan and Air Seoul in the country. Also, there are Jeju Air Co., Eastar Jet Co., and Tway Air Co. running independent short-haul flight services.

An aviation industry source said Hanwha is making capital investment in the LCC business on expectations for synergies between the LCC business and its affiliates such as aircraft engine parts maker Hanwha Techwin and hotel and resort business. Hanwha Techwin earns 40 percent of its total revenue from its air craft engine parts business and it also produces Geared Turbo Fan (GTF) and Leading Edge Aviation Propulsion (LEAP) that are used in LLCs. The group also operates hotels and resorts across the country.

An unnamed Hanwha official said the company is making capital investment to tap enormous growth potential in the domestic LCC market, shrugging off speculation it would operate a budget carrier business. The company does not have any plan of starting the air-passenger business, he added. But industry watchers are predicting otherwise.

KAIR Airline is a new LCC waiting for approval for an air transport business license from the government.

By Kim Jung-hwan

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