Korean Air Lines (KAL) is expected to sell its business units through limited competitive bidding or a private sale rather than a public auction.
KAL, South Korea’s largest airline and a flagship unit of Hanjin Group, is in the process of estimating the value of its business units – including in-flight meal services, mileage services and maintenance, repair and operations (MRO) services – sources familiar with the situation said on May 20. The company is expected to sell its business units through limited competitive bidding or a private sale as soon as the valuation assessment is completed.
Hanjin Group is discussing the possible sale of its business units with investment banks at home and abroad while consulting with Korea Development Bank (KDB) and The Export-Import Bank of Korea on which business units to be sold. The in-flight meal service operation, among other business units, will likely be the first to be put up for sale.
KAL’s mileage services and MRO services units, which were widely expected to be excluded from the process, may also be put up for sale. The mileage services unit’s valuation was estimated at between 500 billion won ($437 million) and one trillion won a few years ago. Investment banks have proposed that the company explores an option of an initial public offering of the unit. The MRO services’ valuation is also estimated at hundreds of billions of won.
A South Korean private equity firm has reportedly shown an interest in the in-flight meal services, expecting to create synergies by combining the in-flight meal services and food and beverage (F&B) business. The mileage services unit is attracting global private equity firms which have acquired related businesses abroad, while the MRO services unit is drawing attention from domestic conglomerates.
If these business units are sold through limited competitive bidding or a private deal, KAL will be able to keep any information on the deal confidential and complete the deal rapidly. As prospective buyers have already shown interest, KAL is not required to seek additional prospective buyers through a public auction.
The management, including Hanjin Group Chairman Cho Won-tae, is reportedly emphasizing that the sale be carried out as discreetly as possible as some creditors’ do not support the sale and the management is concerned about a possible negative impact on the company.
The sale process of KAL’s business units are expected to be led by Credit Suisse. KDB is already proceeding with the process with Credit Suisse. KAL is likely to move forward with the formal sale process as soon as it makes a decision on which business units to be sold.
(Reporting by Ik-hwan Choi)