A Hot Deal for the Second Half of 2020
Korean Air will sell its highly lucrative in-flight meal business to secure liquidity as its plan to sell the land parcel in Songhyeon-dong, central Seoul has hit a snag.
Credit Suisse (CS), which has been requested by Korean Air to estimate the value of its assets, will send teaser letters (investment information) to potential buyers as early as next week.
Korean Air was expected to sell its Mileage Division and MRO (maintenance, repair and operating supply) Division as well, but the two divisions were not put up for sale.
"We understand that CJ Group is the most keenly interested in Korean Air's in-flight meal business, which is considered a 'hot deal' for the second half of in 2020," an investment banking industry insider said. "We expect food and distribution companies, including CJ, to compete for the in-flight meal business.”
Proceeds from the sale of the in-flight meal business are expected to give a breather to cash-strapped Korean Air. If the original buyer tapping is outlined, the sale process will begin in the second half of 2020.
Korean Air's in-flight meal business unit is a cash cow that recorded annual sales of 350 billion won and operating profit of 30 billion won annually before the COVID-19 crisis. It provides an average of 71,000 meals a day. Its earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to 20 percent and its enterprise value (EV) is estimated at 600 billion won.
When Asiana Airlines sold its in-flight mean business to LSG, which is affiliated with Lufthansa in Germany, in 2003, the sale price was nearly 10 times the annual sales of the division. Some observers say the sale price of Korean Air’s in-flight meal division will eclipse that of Asiana Airlines.
In this regard, Korean Air expressed a cautious stance, saying, "We have requested Credit Suisse to assess the value of Korean Air's assets after the liquidity crisis erupted, but we have yet to officially sign a contract with it for the sale of the in-flight meal business."