Korean Air Lines (KAL) is expected to start a process to sell its in-flight meal services soon. Credit Suisse, which is providing consulting services to the airline, plans to send teaser memorandums (TMs) to a limited number of potential buyers.
Credit Suisse plans to send out TMs to potential buyers soon, according to industry sources on June 16. Credit Suisse previously sent documents containing brief information about the target to domestic and foreign private equity (PE) firms and strategic investors (SIs). The teasers will include more detailed information about the target including separate financial statements.
The TMs will be sent to a limited number of potential buyers. As some domestic PE firms and SIs have already shown their interest in the deal, the airliner will likely set a pool of potential buyers before the sale process begins. Major potential buyers are expected to receive teasers to achieve deal certainty. After that the airline is expected to attempt to sell its business unit through limited competition bidding.
KAL is likely to hold a preliminary bid for in-flight meal service operations as early as July. The South Korean Government is expected to announce its support to rescue key industries battered by the Covid-19 pandemic, including KAL, through a corporate relief fund soon. Apart from the support, the full-service carrier is likely to continue its sale process as it needs to secure additional liquidity.
“The in-flight meal service unit has been put up for sale first as it is most likely to be sold among other business units,” said an industry source, who added that the process is likely to be carried out swiftly from July.
KAL and Hanjin Group’s senior management had been pessimistic about the sale of the in-flight meal service unit but they seemingly changed their mind, with a planned sale of the Songhyeon-dong site facing obstacles. KAL’s initial plan to sell the site through a public auction has collapsed as the Seoul Metropolitan Government has proposed developing the property into a cultural park.
The carrier has sought to secure 500 billion won ($411.5 million) in cash through the sale. Selling the land to Seoul is less helpful to the airline as the city government plans to pay for it in 2022. The price tag will also be lowered to 400 billion won. KAL will have to sell its in-flight meal service unit to carry out its self-rescue measures and secure cash amid heightened hurdles to sell its Songhyeon-dong site.
KAL’s in-flight catering services are estimated to have generated sales of roughly 100 billion won and an operating profit of 20 billion won, according to market analysts. The unit’s price tag is estimated at 500 billion won. (Reporting by Ik-hwan Choi)