Businesses seek to acquire Air Busan as Korean Air-Asiana merger stalls

The political and business circles in South Korea’s southeastern port city of Busan are pushing to acquire Air Busan Co., a subsidiary of Asiana Airlines Inc., as the proposed merger between Korean Air Lines Co., the country’s national flag carrier, and smaller local rival Asiana Airlines remains stagnant, in a move that ensures an Air Busan presence in its namesake city.

According to the aviation industry and local media on Tuesday, the city of Busan, the Busan Chamber of Commerce and Industry, and seven local companies announced the formation of a task force dedicated to a separate sale of Air Busan the day before. The team will explore ways to support local companies in forming a consortium to pursue an acquisition. It plans to come up with a concrete plan within the year and make a formal request to Korea Development Bank (KDB), Asiana Airlines’ main creditor.

Air Busan is currently 41.97 percent owned by Asiana Airlines and related parties. Given that Air Busan’s market capitalization was around 330 billion won ($252.83 million) on Tuesday, the value of Asiana Airlines’ stake is estimated to be around 140 billion won. The market expects that the Busan business community will need to mobilize more than 200 billion won in funds to acquire the entire stake. Busan City and the business community own about 16 percent of Air Busan together, placing them in a strong position.

Air Busan was formed in 2007 with the support from citizens and the business community that raised the need for a regional-based airline.

The city of Busan and the local business community have expressed concerns about Air Busan’s future as the Korean Air-Asiana Airlines merger became more tangible. Korean Air plans to integrate Jin Air Co., Air Busan, and Air Seoul Co. into a large low-cost carrier (LCC) when it merges with Asiana Airlines, and the city has been calling for the headquarters of the integrated LCC to be in Busan or for Air Busan to be spun off. As uncertainties arise surrounding the merger, however, it appears that the city has shifted its stance to demanding a separate sale of Air Busan.