Aekyung Group, a Korean cosmetics-to-health care conglomerate that owns low-cost carrier Jeju Air Co., is entering a bidding battle for Asiana Airlines Inc.
Recently, the group has disclosed its intention to take over the financially troubled full-service carrier, while major business groups, such as CJ, Lotte, SK, Hanwha, has all announced that they are not interested in purchasing it.
Aekyung Group has contacted Samsung Securities Co. as a lead acquisition manager. Currently, it is also checking on takeover prices and conditions.
An official from Aekyung Group said, “It is true that we are interested in buying Asiana Airlines. We are in talks with some securities companies, including Samsung Securities, to select a lead acquisition manager.” Creditors led by Korea Development Bank (KDB) announced that the bidding process would start in July at the earliest.
Aekyung Group is the first and only business group in South Korea that has the experience to establish and successfully operate a commercial airline. Therefore, it is highly likely to be recognized as a perfect candidate to normalize Asiana Airlines and build up a new basis for growth in the future. The group succeeded in growing Jeju Air into the nation’s third largest airliner in a short span of time.
Aekyung Group has entered the takeover battle for Asiana Airlines because the airline business has become its core business. If it takes over the national flag carrier, the group will become a major airline in Korea with a fleet of 150 aircraft, including planes from Asiana Airlines and its affiliates, Air Busan Co. and Air Seoul Co., as well as Jeju Air.
However, Asiana Airlines is heavily indebted, with its debt ratio as high as 649 percent based on its consolidated financial statements last year. The high debt ratio can lay a heavy burden on Aekyung Group. If AK Holdings Inc., the group’s holding firm, acquires Asiana Airlines, its debt ratio will surge from 131 percent to 351 percent. But it can considerably drop the ratio if it attracts financial investors into the deal.
As Aekyung Group has come forward to acquire Asiana Airlines, other conglomerates are likely to make a move, although they officially deny interest in the struggling airline. An official from an investment bank said, “I think most of them are hiding their claws because the price will go up if they say they are interested in the deal.”
Aekyung Group, which is led by AK Holdings vice chairman Chae Hyung-seok, the oldest son of Chae Mong-in, the late founder, set up Jeju Airline in 2005. Jeju Air serves as a cash cow of the group as it posted 1.26 trillion won (US$1.06 billion) in sales and 102.30 billion won (US$86 million) in operating profit last year. The group is well-known to consumers thanks to its household and personal care goods and duty-free businesses, but it is relatively small among conglomerates. It is the 58th largest conglomerate in South Korea and has only recently been designated by the Fair Trade Commission as a business group subject to restrictions on intra-group equity investments.