News
Aero K and Fly YangYang AOCs rejected
January 5th 2018
South Korea’s Ministry of Land, Infrastructure and Transport (MLIT) has rejected the applications of Aero K and Fly YangYang for air operator certificates (AOCs), citing an oversaturated low-cost carrier (LCC) segment and heightened market entry barriers. Read More »
The ministry dealt the rejections following advice from a special committee that recommended the minimum capital requirement for new airlines be raised from 15 to 30 billion won (US$13 to 26 million) and the minimum number of aircraft increase from three to five.
MLIT also said it was not a good time to launch a new budget carrier that focuses on regional flying, given South Korea’s deteriorating relations with Mainland China, a major inbound tourism market.
Cheongju-based Aero K was officially launched as KAIR Airlines last year with an order for eight A320ceo.
The start-up has reportedly received a 16 billion won (US$14.1 million) investment from Hanwha Techwin Co. and Hanwha Investment & Securities Co., giving the Hanwha Group conglomerate an almost 20% stake in the LCC.
Hanwha produces parts for CFM International’s LEAP engines and rival Pratt & Whitney’s GTF power plants, with approximately 40% of Techwin’s revenues coming from the engine parts business. The group also operates and manages hotels and resorts across South Korea.
At last year’s launch, the airline said it saw “enormous potential for the development of a low cost model linking central South Korea with destinations in China, Taiwan and Japan”. When the start-up ordered the eight A320ceo, Airbus master salesman, John Leahy, said the OEM was “impressed” by the business model developed by the airline.
For Fly YangYang, the situation is worse. This is the second time in a year the Yangyang-based start-up had its AOC application rejected.
In the first round, last February, MLIT said it rejected the airline’s AOC application due to “the risk of financial instability in the early stages of operation, as well as insufficient safeguards for safety and consumer convenience.”
Based on this month’s verdict, that start-up’s financial position has not improved markedly and it certainly did not help that Fly YangYang’s business model is based bringing Mainland tour groups to Gangwon Province.
Both Aero K and Fly YangYang are expected to redefine their business plans and seek AOC approval again later this year.
If approved, they will join South Korea’s busy low-cost scene. Asiana Airlines has both Air Busan and Air Seoul; Korean Air got Jin Air and there are also independent Jeju Air, Eastar Jet and T’Way Airlines.
