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(News Focus) With Asiana Airlines on selling block, funding remains key to success

Industry 18:10 April 16, 2019

By Joo Kyung-don, Choi Kyong-ae

SEOUL, April 16 (Yonhap) -- A slew of South Korean conglomerates have emerged as potential buyers for Asiana Airlines Inc. after its parent group decided to sell off its flagship unit, and with a price tag that could go up to a hefty 2 trillion won (US$1.7 billion), the full-service airline will likely end up in the hands of the one with the deepest pockets.

As part of its self-rescue plan, cash-strapped Kumho Asiana Group decided Monday to sell its crown jewel Asiana Airlines to overcome its liquidity crisis.

Following the announcement, four South Korean groups -- SK, Hanwha, CJ and Aekyung -- bubbled to the surface amid speculation that they may join the race to take over the nation's second-largest air carrier to create synergy and diversify their business portfolios.

Although none of them have officially revealed that they're interested in Asiana Airlines, industry observers said there's a reason why these four groups specifically have emerged as potential buyers.

"A potential buyer who wants to create synergy with its existing businesses will enter the bidding process," said an analyst at Mirae Asset Daewoo, who asked not to be named due to the sensitivity of the issue. "In my opinion, those who have experience in duty-free sales will be interested in buying the airline. But at this point, no one needs to be in a rush. They'll wait and move carefully once it receives an offer."

This photo shows the Asiana Airlines headquarters building in western Seoul. (Yonhap)

At the front of the potential takeover race is SK, South Korea's third-largest conglomerate. The energy and telecom-focused business group hired a former chief of Jeju Air Co. for its top decision-making body last year, spawning speculation that it may consider making inroads into the airline-related service sector.

"Officially, we're not reviewing the purchase of the airline, but if there's an offer from creditors, we will listen," a group spokesman said.

The conglomerate, headed by chairman Chey Tae-won, has a business portfolio that can create synergy with the air carrier, with oil refining, logistics and hotels expected to be the major beneficiaries.

Hanwha is another potential candidate that industry insiders are closely watching. The nation's eighth-largest conglomerate has a history of having invested into an air carrier and owns a company that manufactures aircraft engines.

Last year, Hanwha participated as a financial investor in Aero K Airlines, when the low-cost carrier applied for a business license. But Hanhwa has been strongly denying the speculation. "If we see more progression on Asiana Airlines' sale, we may look into it, but at this point, we're not interested in the deal," a Hanwha spokesman said.

CJ, South Korea's 15th-largest conglomerate, also shot down the rumors, despite its history of making deals with Kumho Asiana. In 2011, the food and entertainment-based conglomerate bought Korea Express, the nation's largest logistics firm, from Kumho Industrial Co., the holding company of Kumho Asiana Group.

Aekyung, which runs the nation's largest low-cost carrier Jeju Air Co., said there were no discussions at all regarding Asiana Airlines.

Retail giant Shinsegae Group was also mentioned as a potential buyer in relation to its duty-free business and its past attempt to buy T'way Air Co., a local low-cost carrier, in 2017. However, the group also denied news reports of buying Asiana Airlines.

This photo taken on April 16, 2019, shows Asiana Airlines aircraft at Incheon International Airport in Incheon. (Yonhap)

But industry observers said that who will become the final winner will all come down to potential buyers' funding capabilities, as those with the most cash will be able to enter the bidding process since the presumed price for Asiana Airlines and its small affiliates is expected to reach up to 2 trillion won.

Under the self-rescue plan proposed by Kumho Asiana, Asiana Airlines' subsidiaries, including no-frills carriers Air Busan and Air Seoul, will be sold out to a new buyer as a package.

Potential buyers also need to come up with solutions to solve Asiana Airlines' worrisome financial situation. The air carrier owes financial institutions 3.2 trillion won in short-term obligations, with some 1.2 trillion won of loans maturing this year.

"This isn't a small deal, and there is a reason why big conglomerates are mentioned as potential buyers," Park Yong-hee, an analyst at IBK Securities, said.

In terms of financing capability, SK and Hanwha are considered front-runners. According to Financial Supervisory Service data, SK Holdings Co., the holding firm of SK Group, had cashable assets worth 6.7 trillion won, while Hanwha Corp., the holding company of Hanwha Group, set 2.9 trillion won in cash and cashable assets on its balance sheet at the end of 2018.

"Acquiring Asiana Airlines means that you're not just buying an airline company," Park said. "It also means that you're buying the airline industry. For conglomerates, buying Asian Airlines would signify its presence as the nation's leading business leader and would also improve its corporate image globally."

Analysts said that if Asiana Airlines is sold to a buyer with deep pockets, it will eventually help upgrade the industry's competitiveness.

"The takeover of Asiana Airlines will be immense to the local airline industry," Kang Seong-jin, an analyst at KB Securities, said. "Asiana Airlines is a long-haul operator, but it gave a chance to other competitors after its plan to grow low-cost carriers didn't go as well as expected. But if a new buyer secures a stable financial structure and makes investments, it will bring new challenges to existing players in the industry."


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