Overview of the Acquisition

Korean Air, the flag carrier of South Korea, is advancing its strategic plan by preparing for the sale of Asiana Airlines’ cargo division. This move comes as a pivotal step following the conditional approval from the European Union’s antitrust regulator, allowing Korean Air to proceed with its merger with Asiana Airlines. The decision to divest Asiana’s cargo business is a critical component of the conditions set forth for the merger’s approval, aiming to maintain competitive balance in the aviation sector.

Potential Buyers and the Selection Process

Among the interested parties for the acquisition of Asiana Airlines’ cargo division, four Korean low-cost carriers (LCCs) have emerged as frontrunners. These include Jeju Air, Eastar Jet, Air Premia, and Air Incheon, each backed by significant shareholders such as Aekyung Group for Jeju Air and various investment firms for the others. The process of selling Asiana Airlines’ cargo division is being facilitated by UBS, a leading Switzerland-based financial services firm. UBS has begun circulating prospectuses and nondisclosure agreements to potential buyers, with the expectation of sending out bid proposals shortly thereafter. Candidates are required to submit their proposals, which must encompass detailed financing and business plans, by the end of February 2024.

Benefits and Challenges for LCCs

Acquiring Asiana’s cargo division presents LCCs with a valuable opportunity for strategic expansion. As noted by Professor Kim Sang-hyun from Korea Aerospace University, the cargo business allows for expansion beyond the limitations of passenger services, which LCCs typically lack. Cargo routes operate during off-peak hours, offering fewer constraints regarding slot allocation. However, the venture is not without its challenges. A significant initial investment is required to establish a local freight sales network and a grounding facility for cargo handling. Furthermore, the distinct markets of freight customers and passengers necessitate careful consideration in selecting a qualified candidate for acquisition.

Financial Aspects and Future Outlook

Asiana Airlines’ cargo division boasts a fleet of 11 dedicated cargo aircraft and reported sales of 1.67 trillion won ($1.2 billion) in 2023, representing 24.6 percent of Asiana’s total sales. With an annual cargo handling capacity of 750,000 tons, it ranks as the second-largest cargo handler in Korea. The acquisition value is estimated to be between 500 billion won ($375 million) and 700 billion won ($524 million), with the exact price to be determined during the bidding process. Korean Air aims to complete the sale by October 2024, with the final approval contingent upon the EU’s assessment of the buyer’s eligibility.

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