Asiana Airlines sells cargo business to Air Incheon

By Thomas Cullen

The issue of Asiana’s cargo business seems to have been finally resolved. The airline, which was bought by Korean Airlines (KAL) was obliged to sell its air cargo business by competition authorities, including in the European Union. This was a complex process, however the business has now been sold to Air Incheon, a freight airline based in South Korea.

Asiana Airlines was bought by KAL after a long process of financial distress at Asiana. Not only was Asiana struggling to sustain profitability but its key shareholder was forced to sell. Characteristically a Korean solution was favoured. The South Korean Government, which held a stake in Asiana through the Korean Development Bank, embraced the purchase of Asiana by KAL. This has gone ahead with KAL paying W1.5 trillion for a controlling 70% equity holding, in what is described as a “merger”.

The drawback with this solution was that it put KAL in an enormously powerful market position. Even within South Korea and the north Asia region its passenger business was far too dominant and the South Korean authorities obliged the company to divest Asiana’s ‘low cost’ domestic businesses. However, KAL also has a very large air freight business, utilising both belly-freight and freighters.

Both the European Union and the US competition authorities indicated that they were uncomfortable with a merger that would have rivalled Emirates in terms of its capacity and market position in the air cargo market. Thus, Asiana was required to sell the air cargo business. Perhaps unsurprisingly the sale was made to another South Korean airline, Air Incheon, a cargo carrier owned by funds controlled by Hyundai Motor Group. The terms of the deal were agreed by the managements of the two airlines in January, with sale price being W470 billion (US$328 million) and shareholders voted to approve this on Tuesday 25^th February.

Air Incheon operates an existing fleet of four 737-800SFs but this will grow as it adds Asiana’s fleet of six 747-400Fs, six 747-400BDSFs and one 767-300F.

Author: Thomas Cullen

Source: Ti Insight 

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