Korean Air Lines Co Ltd (KAL) – a key subsidiary of Hanjin KAL which is a holding company of South Korea’s Hanjin Group – has entered into exclusive talks with Hahn & Co over the sale of its in-flight meals and sales business, sources said on July 7.
The talks are expected to become official when the Seoul-based buyout firm starts due diligence soon. KAL is said to be giving Hahn & Co four weeks to conduct due diligence. The two sides will likely sign a share purchase agreement early next month, which will be followed by the business split-off from KAL.
The takeover talks have gained momentum over the last week when Hanjin Group chairman Cho Won-tae met in person with two buyout firms – Hahn & Co and MBK Partners – to discuss the sale. Then the group started negotiations with Hahn & Co which intends to buy the business, according to sources.
The group’s management initially planned to sell KAL’s in-flight business, which consists of in-flight meals division, in-flight duty free retail division and the aviation training center, as a whole. But the aviation training center has been excluded from the takeover discussion because both KAL and Hahn & Co preferred to leave it out for their own reasons.
KAL would have wanted to quickly offload the in-flight meals and retail divisions, which are suffering hardship due to the Covid-19 pandemic, industry watchers said. As the carrier temporarily cut 78 international routes, the number of available seats on KAL’s international flights has been reduced about 80% compared to before the pandemic. A sharp reduction in revenues from its in-flight meals and sales services, which are provided to passengers on international flights only, could put pressure on the cash-strapped carrier’s liquidity profile.
On the other hand, the aviation training center is gaining popularity amid the pandemic as more pilots are unable to access a real aircraft due to a decline in flights, leading to rising demand for simulator training to maintain pilots’ qualifications. This means the carrier has more time to explore other options. KAL’s training center has an annual capacity to train over 3,500 pilots.
The aviation training center is less tempting to Hahn & Co, sources said, because of its characteristics of being similar to infrastructure assets, which have stable income streams but less potential for profit growth. It is also unlikely to create synergies with Hahn & Co’s existing portfolio companies.
“The simulator training center can generate stable income but there is limited room for profit growth. Options for exit are limited too,” an industry insider said. “It is also better off for KAL to wait for interest from other potential buyers, such as infrastructure funds, which may offer a higher price.”
Credit Suisse is advising KAL on the sale. Additionally, KAL recently hired Kim & Chang and Yoon & Yang to act as legal advisers and Samjong KPMG as accounting adviser. (Reporting by Ik-hwan Choi)