The author is an analyst of KB Securities. He can be reached at seongjin.kang@kbfg.com. — Ed.
Acquisition of 54.9% stake in Jin Air positive
— Korean Air has decided to purchase a 54.9% stake in Jin Air from its parent Hanjin KAL. While the lofty price tag (at a premium to recent closing price) and potential cash outflow on investment activities for its LCCs (to be combined) may be negative, the regaining of exposure to the LCC business should be positive for share price.
Purchase of Hanjin KAL’s entire stake in move towards vertical integration of LCC affiliates
— Korean Air has decided to purchase Hanjin KAL’s entire stake (54.9%) in Jin Air for KRW604.8bn (KRW21,100 per share). Korean Air announced in its public disclosure that the purchase is intended for the creation of synergies via vertical integration of its LCC affiliates. Hanjin KAL, meanwhile, stated that the disposal is aimed at improving its financial structure.
Move for creating synergies, integration of LCCs, meeting cash needs of merged LCC
— We believe the acquisition is aimed at the following.
— (1) As stated by Korean Air and Hanjin KAL, the move may be aimed at pursuing synergies via vertical integration of its FSC and LCC businesses. According to media report (Invest Chosun, May 4), having the merged LCC as a subsidiary under Hanjin KAL had been considered, but the decision instead to have Korean Air as an intermediate holding company and the merged LCC as a subsidiary under Korean Air is likely to have been intended for the creation of synergies among airline affiliates.
— (2) The move appears to be for the integration of its LCC affiliates. Korean Air is currently in the process of acquiring and merging with Asiana Airlines. If the deal goes through, the LCC affiliates of Asiana Airlines (Air Busan and Air Seoul) would become subsidiaries to Korean Air, in addition to Jin Air. In becoming the largest shareholder to all three LCC…