The bank overseeing the sale of the cargo arm of Asiana Airlines (OZ, Seoul Incheon) has extended the due diligence period as it scrutinises potential bidders' financial and business development plans. Seoul-based business news sites report that UBS has allowed itself another two weeks to undertake due diligence before announcing the two preferred bidders to buy the cargo business. As a result, an announcement is now more likely to happen in June than in May, as previously flagged.
Asiana is selling its profitable cargo business to ease competition concerns as it seeks to close a merger with Korean Air (KE, Seoul Incheon). The sale was a condition of the two airlines securing merger approval from the European Commission and is likely to be instrumental in gaining US approval - the sole significant jurisdiction still to decide on the merger application.
Three Korean carriers, Air Premia, Air Incheon, and Eastar Jet, had submitted formal expressions of interest by the mandated deadline. All three have enlisted the support of private equity firms and other entities. Air Premia has formed a consortium comprising MBK Partners, Meritz Securities, and Cargolux (CV, Luxembourg). It also has the backing of shareholder JC Partners. Eastar will rely on its parent, private equity firm VIG Partners, along with Woori Bank and NH Investment & Securities, for the financial firepower to support its bid. Air Incheon will tap its largest shareholder, Socius Capital, for support. Also supporting the Air Incheon bid are Korea Investment Partners, machinery manufacturing company Inhwa Precision, Korea Investment & Securities Company, and Shinhan Securities.
The Korean outlets suggest UBS will choose Air Premia and Air Incheon as the preferred bidders. The Air Premia bid benefits from MBK Partners' deep pockets. The business, one of the largest private equity firms in Asia, has deployed USD3.6 billion in investments in the last two years and is presently midway through raising USD7 billion via its Buyout VI fund. Although the Air Premia EOI was reportedly the most hurried, the involvement of MBK has attracted attention in the UBS sale room.
The Air Incheon EOI is reportedly well-received because it is an established cargo airline, whereas Air Premia and Eastar Jet are primarily passenger operators. Eastar may be cut from the list of preferred bidders, according to the local news reports, because it had only recently secured its cargo air operator's certificate and has no significant cargo experience.
The amended timeline will now likely see a preferred bidder selected in June, a stock purchase agreement signed around one month later, and the buyer's name put to the European Commission for approval, per the terms of their merger approval. However, the deal will not close until the US approves the merger and Korean Air and Asiana are sure it will proceed.
Asiana's eleven freighters, slots, air rights, and employees are expected to pass to the successful bidder for KRW500-700 billion won (USD370-510 million). Approximately KRW400 billion (USD290 million) in debts will also pass to the new owner, making the true cost around KRW1 trillion (USD730 million).
