Korean Air selling 2 in-flight businesses to investor group
Korean Air Lines is unloading its in-flight businesses to a private equity investment group as part of its restructuring effort.
The carrier announced on Tuesday it signed a memorandum of understanding with Hahn & Company to sell its cash cow in-flight meal and in-flight duty-free businesses for an estimated 1 trillion won ($893 million). The airline gave exclusive negotiation rights to the company.
The deal was confirmed during a board meeting, and the two parties have agreed to engage in further negotiations in the near future.
Hahn & Company's portfolio includes cement manufacturer Ssangyong Cement and K Car, a secondhand car company.
The deal was part of the airline’s efforts to raise cash as travel demand plummeted due to the Covid-19 outbreak. The airline is also in the process of selling real estate in Songhyun-dong in Jongno District, central Seoul, “to prepare for the long-term effect of Covid-19,” the airline said in a statement.
The in-flight meal business is one of the key cash flow sources for the airline, with annual sales exceeding 200 billion won.
Selling it is expected to generate backlash from some employees, but Korean Air Lines said it will do its best to guarantee salaries and the security of jobs through communications with the labor union.
The latest deal to sell in-flight businesses is seen providing the funding the airline desperately needed. Following the deal, the chance of the airline selling off additional businesses is unlikely.
“At this stage, we’re not reviewing any additional selling of an operation division,” an airline spokesperson told Yonhap.
State-run banks announced a plan to provide 1.2 trillion won to the airline in April. Korea Air Lines is to receive 1 trillion won of additional support from the basic industry stability fund through the Korea Development Bank in the second half of the year.
On Tuesday, the airline confirmed 14,200 won per share to be the issuing price for new shares. It is selling a total of 79,365,079 shares, which will bring in around 1.1 trillion won.
The company's shares closed 17,200 won on Tuesday, down 3.1 percent from the previous day.
The airline reported that Hanjin KAL, which owned 29.96 percent in Korean Air Lines as of late March, will be taking part in its issuance of new shares. Hanjin KAL plans to invest 320.51 billion won to buy stock from the airline. It will own 29.27 percent of the airline’s shares after the purchase of the new shares.
As part of the recovery plan, Korean Air Lines had 70 percent of its workforce take paid leave for six months starting in April.
The airline’s sales declined 22.5 percent in the first quarter. It reported an 82.79 billion operating loss from 230.81 billion won in operating profit in the same quarter last year. Market watchers project second-quarter performance to be worse since the impact of Covid-19 was more severe in the second quarter.
BY JIN MIN-JI [email@example.com]