Jeju Air backs out of bidding for Asiana's cargo business

Korea's largest budget carrier withdrew from the bidding, which ended on Thursday as Korean Air inches closer to its merger with the No. 2 airline.

Cargo is being loaded onto an Asiana Airlines aircraft. [ASIANA AIRLINES]

Jeju Air, Korea's largest budget carrier, withdrew from the final bidding for Asiana Airlines' cargo business valued at around 1 trillion won ($727.27 million), as an integral step in Korean Air's envisioned merger with the country's No. 2 airline came to a close on Thursday afternoon.

The bidding, with UBS as the lead manager, involved three budget carriers — Air Premia, Eastar Jet, and cargo-focused Air Incheon — as Jeju Air chose to drop out from the bid at the last minute, an electronic disclosure showed.

"Following due diligence and considering synergy effects, internal discussions prioritized investment in the adoption of next-generation aircraft, cost competitiveness and diversification of operations [such as hotel operations and subsidiaries in ground operations and IT services] over the acquisition of Asiana's cargo business," a Jeju Air spokesperson told the Korea JoongAng Daily Thursday.

Of the four shortlisted contenders that underwent due diligence from late February, Jeju Air was considered the strongest candidate.

The sale of Asiana's cargo arm is part of the remedial measures required under the European Commission's conditional approval for Korean Air's planned acquisition of the smaller airline, aimed at addressing completion concerns.

Korean Air, the seller, and UBS will now assess the final acquisition bids, considering factors such as the proposed acquisition amount and funding plans put forth by the contenders.

The estimated price tag of the company's cargo business sale, including the sale price and existing debts, is around 1 trillion won, according to industry insiders.

With the three bidding contenders facing capital impairment, fund-raising capability has emerged as a critical consideration. The three, with private equity firms as their largest shareholders, have formed consortia with investors to secure necessary funds.

Experience and expertise in operating mid- to long-haul cargo routes also weigh heavily in the evaluation criteria for selecting the preferred bidder.

"While assessing the funding capacity of potential acquirers is crucial, given the involvement of many airlines with private equity firms as their largest shareholders, evaluating their operational ability and sustainability would also be pivotal in choosing the preferred negotiating partner," said an industry source, speaking on the condition of anonymity.

The preferred bidder is expected to be announced in approximately three to four weeks, in May.

BY SEO JI-EUN [seo.jieun1@joongang.co.kr]