Air Premia, a Korean low-cost carrier (Courtesy of Air Premia)
Asian private equity firm MBK Partners has dropped out of a plan to back 300 billion won ($217.9 million) for South Korean budget airline Air Premia Inc.’s acquisition of the cargo business unit of Asiana Airlines Inc. Seoul-based brokerage firm Meritz Securities Co. is eyeing to become a new partner of the low-cost carrier (LCC).
The PE house, which had considered investing in Air Premia via its 2.1 trillion won special situation fund, has determined not to join the deal estimated to be around 500 billion won, according to investment banking sources on Wednesday.
MBK, which initially considered backing Jeju Air Co. for Asiana’s cargo unit deal, decided to team up with Air Premia last month as Jeju Air dropped out of the race. The North Asia-focused PE manager mulled investing 300 billion won in Air Premia’s convertible bond.
As the MBK pulled out of the plan, Meritz Securities has submitted a letter of confirmation to Air Premia for a 300 billion won investment in the LCC, sources said.
MBK Partners
PLAN CHANGED
The budget airline was planning to use its cash, Seoul-based Pavilion Private Equity Co.’s project fund and MBK’s second special situation fund to finance the purchase of Asiana’s cargo unit.
But the LCC had to shift its plan amid concerns that funding from MBK, which has overseas investors as its major limited partners, may not receive the Korean government’s approval for financing the acquisition.
Under the country’s Aviation Business Act, a company of which representative is a foreigner or in which foreigner’s stake is 50% or above, the company can’t own a Korean airline.
There are three bidders for Asiana’s cargo unit – Air Premia, local budget airline Eastar Jet and cargo-dedicated LCC Air Incheon. Korean Air Lines Co., the seller of the cargo business, is expected to select a preferred bidder as early as mid-June.
Aircraft of Korean Air Lines and Asiana Airlines (Courtesy of Yonhap)
NOD FROM GLOBAL AUTHORITIES
Korean Air, the country’s No. 1 full-service carrier, is selling the cargo unit in an effort to receive a definite nod for its 1.8 trillion won acquisition of the biggest crosstown rival Asiana, which is forecast to create the world’s seventh-largest airline.
In February, the European Union’s antitrust body European Commission approved the merger of the two airlines, on the condition that Korean Air divests its four lucrative European passenger routes and Asiana’s cargo business.
Korean budget carrier T’way Air Co. has agreed to take over Korean Air’s operations on the four routes – Seoul Incheon-Paris, Seoul Incheon-Rome, Seoul Incheon-Barcelona and Seoul Incheon-Frankfurt.
Korean Air has obtained approval or completed the review process of 13 of the 14 regulatory authorities across the world. It is awaiting nod from the US.
By Jun-Ho Cha
chacha@hankyung.com
Jihyun Kim edited this article.
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