A rationalisation of South Korea’s air cargo sector is underway in a process that has some parallels with the sale of state-owned assets presently on-going in the Korean container shipping sector.
Asiana and Korean Airlines are to merge as result of an agreed bid by Korean Air to buy Asiana for Won 1.8 Trillion (US$1.4bn) in 2020. The impetus for the deal was the Korean State Development Bank wishing to resolve the exposure of its investment in Asiana in the face of Asiana’s record of losses. The purchase was complicated by Asiana’s growing debts.
Possibly unsurprisingly, some competition authorities outside South Korea objected to a purchase that would place Korean Airlines in a commanding position on air routes, not just on the Korean peninsula but much of North Asia as well. Although the deal gained approval from the last of the foreign regulators at the beginning of this year, one of the terms for approval was the sale of Asiana’s cargo business.
Asiana cargo has now been put up for sale and there have been several bidders. According to South Korean media, most appear to be South Korean ‘low-cost’ carriers, notably Air Premia, JeJu Air, Eastar and Air Incheon, however some of these airlines are owned by large Korean conglomerates or in some cases backed by private equity companies. The South Korean media estimated the offers to be in the region of Won 700 billion (US$500m) although there is no confirmation of this.
The deal is of significance not just for the air cargo market in North Asia but for the business worldwide. Combined Korean Air and Asiana hold around two-thirds of the South Korea airfreight market, with Asiana’s cargo business having sales of Won 1.6 trillion (US$1.2billion) and was profitable. Bearing in-mind that the acquisition of Asiana by Korean Air will make the latter one of the ten largest airlines by sales in the world, it is hardly surprising that such a concentration of capacity was regarded as anti-competitive by regulators.
Yet there remain some problems with the sale. A key asset of Asiana cargo was the belly-freight of Asiana’s passenger aircraft, which presumably it will no longer have access to once Asiana and Aisana Cargo are different companies. In addition, Asiana cargo’s freighter fleet of ten Boeing 747-400F and one Boeing 767-300 is getting old and it is likely it will need to be replaced in the near future.
Author: Thomas Cullen
Source: Ti Insight
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