Baek Byung-yeul is a journalist at The Korea Times focused on cultural content, including films and cultural events in South Korea. You can contact him at baekby@koreatimes.co.kr to share your insights.
New order to prevail in low-cost carrier market
By Baek Byung-yeul
By Baek Byung-yeul
Korea's low-cost carrier (LCC) business is set to enter a new phase in the wake of the COVID-19 pandemic, as a consortium led by underwear maker Ssang Bang Wool (SBW) has submitted a bid in the auction to acquire Eastar Jet.
Kanglim, SBW's equipment manufacturing arm, said it made on offer on Monday, becoming the sole bidder. Meanwhile, Pan Ocean, a shipping firm owned by chicken processing company Harim, was also expected to join the acquisition race, but did not submit a bid by the Monday deadline.
If the SBW-led consortium acquires Eastar Jet as intended, the country's budget airline industry will be reorganized. Currently, Jeju Air has been leading the local LCC market with 4.35 million passengers in 2020, followed by T'way Air with 3.93 million passengers and then Jin Air, an affiliate of Korean Air, with 3.65 million.
Due to the coronavirus pandemic which started last year, the aviation industry was among the most affected by the virus crisis, undergoing large-scale restructuring processes and cutting the number of employees. According to data by the transport ministry, the number of passengers who used budget carriers in 2020 decreased by 11 percent from 2019.
Despite the fact that the airlines have been struggling with aircraft lease debts, industry officials said the industry is expected to recover rapidly in the second half of this year, with more people becoming eligible to get COVID-19 vaccines.
Eastar Jet will choose its acquirer in the form of a stalking-horse bid, which refers to the process in which an initial bidder sets the minimum price bar and then other potential buyers have to outbid it to become the new owner.
Currently, local construction company Sungjeong has been chosen as the initial bidder, with a bid of 80 billion won. Given the fact that SBW proposed a bidding price of 100 billion won, it has shown strong confidence that its consortium will be able to acquire the airline smoothly.
“The merger and acquisition process will be conducted in the form of a stalking-horse bid, but the consortium is confident in the acquisition, as it is considered to be superior to Sungjeong,” an official representative of the consortium said.
The SBW-led consortium hopes it can create a huge synergy effect in the Chinese market by acquiring Eastar Jet, which operates flights to 12 destinations in China.
With the budget air carrier business, Kanglim plans to advance into the air carrier maintenance and cargo businesses. SBW also plans to expand into China's underwear market, which has an annual market size of 74 trillion won. SBW's entertainment business subsidiary, IOK Company, will also be able to increase its presence in China.
“We are drawing a blueprint for after the acquisition from more diverse angles. We expect that the market in the entertainment industry will soon recover, along with the demand for travel, as the vaccine supply rate increases,” the consortium official said.
“The acquisition of Eastar Jet will have a huge impact on new businesses for Kanglim and IOK Company. We expect that the new businesses will blend in with their existing businesses to create a great synergy effect.”