Hahn & Co buys Korean Air's catering, duty free businesses

The deal – said to have been negotiated on a proprietary basis – ranks as the largest private equity buyout in Korea so far this year. Korean Air will take a 20% stake in the business post-divestment and the airline has entered into a long-term service agreement covering catering and duty free.

Like many of its peers, Korean Air has been forced to cut costs and shore up its balance sheet in response to travel restrictions imposed to contain the spread of COVID-19. Revenue passenger kilometers (RPK) – a traffic measurement metric used globally – fell 79% year-on-year in the first six months of 2020 for China routes. Japan, Americas, Europe, and Southeast Asia routes were down 74%, 55%, 69%, and 61%, respectively. Domestic RPK was down 44%, with a revival starting in April.

In February, Hanjin said that non-core assets – chiefly hospitality and real estate holdings – would be sold off and Korean Air would focus on airline and logistics businesses. Last month, Korean Air completed a KRW1.1 trillion rights issue. This came after Korean Development Bank and Export-Import Bank of Korea provided KRW1.2 trillion in financial aid.

The in-flight catering and duty-free businesses together generate about KRW500 billion in annual revenue, with a 50-50 split, according to a source familiar with the situation. The catering operation produces about 81,000 meals a day, with 60% of the revenue coming from Korean Air and 40% from international carriers using Incheon Airport. The duty-free operation is said to be among the largest run by any airline globally.

Korean Air’s revenue was KRW12.7 trillion in 2019, down from KRW13 trillion the previous year. Over the same period, its net loss widened from KRW168.4 billion in 2018 to KRW629.1 billion in 2019. In the first six months of 2020, revenue came to KRW4.2 trillion and the net loss was KRW608.9 billion. Nearly 90% of revenue is generated by air transportation services.

Hahn & Co, which was founded in 2010 by Scott Hahn, formerly CIO of Morgan Stanley Private Equity Asia, is currently deploying its third Korea-focused buyout fund. The vehicle closed last year with commitments of $3.2 billion, comprising a $2.7 billion core fund and a $500 million co-investment fund. Recent deals include a KRW382.5 billion carve-out of SK Group’s SK Chemicals.

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• Topics
• North Asia
• Buyouts
• Consumer
• Support services
• South Korea
• Transportation
• Hahn & Co