Jeju Air’s AK Group would be challenged to take over Asiana
Lack of funds becomes an issue after Jeju Air reports rare quarterly loss. Read More »
There is growing consensus that Jeju Air major shareholder, AK Group, will be unable to acquire the funds necessary to purchase and invest in Asiana Airlines. AK was the first company to confirm it was interested in bidding for Korea’s second largest airline.
There were initial doubts as the possible investment was seen as raising competition concerns and potentially risking Jeju Air’s success if AK was strained by the significant work needed to overhaul Asiana.
Those distracting concerns grow as Jeju Air reported a second quarter loss, ending a profit streak of nearly 20 consecutive quarters. Jeju was weighed down by intentional over-capacity to secure marketshare as well as softness in the Japanese market that started before tensions increased between the two countries. But the larger concern is Jeju and other Korean LCCs have taken their eye off costs, growing complacent after a long period of success. Orders for new aircraft change the previous model of using inexpensive second-hand aircraft.
AK is struggling to find a financial partner to form a consortium to bid for Asiana, Seoul Economy reported. AK is said to have KRW355 billion (US$293 million) in cash and cash equivalents. This covers only 18% of Asiana’s projected selling price of KRW2 trillion (US$1.7 billion) excluding investment costs. This price is estimated by a securities house using standard financial metrics that may not necessarily apply. Even if the eventual sale price is lower, AK alone will be unable to fund the purchase.
Asiana would benefit from coming under a larger group since the new owner could help reduce Asiana’s borrowing costs. Asiana has historically high debt. Another potential bidder is SK, a chaebol that would be able to fund an acquisition and lower debt.