The acquisition of hybrid airline Air Premia is facing challenges as private equity firm VIG Partners and Tire Bank struggle to reach an agreement on the price. VIG Partners, the buyer, is seeking to lower the price based on Air Premia's financial condition, while Tire Bank, the seller, is looking for a price above its cumulative investment. However, VIG Partners remains committed to the acquisition, aiming to combine Air Premia with its recently acquired short-haul airline, Eastar Jet, to create a comprehensive sale.
According to investment banks and the airline industry on September 17, VIG Partners has appointed Bain & Company as its advisory firm and has begun due diligence for the acquisition of approximately 70% of Air Premia's management rights, which are held by AP Holdings and Tire Bank. Currently, AP Holdings owns 48% of Air Premia, while Tire Bank holds 22%. AP Holdings is an investment company associated with Kim Jeong-kyu, the chairman of Tire Bank, and his children.
The key issue in the negotiations is the price. Kim Jeong-kyu's side emphasizes Air Premia's competitive long-haul routes among domestic low-cost carriers, pushing for a higher acquisition price. Since being acquired by Tire Bank last year, Air Premia has added three more aircraft, increasing its fleet of Boeing 787-9 Dreamliners to nine. The airline also achieved a record of 1,088,964 passengers, marking its first annual total of over one million. However, profitability has declined, with last year's revenue at 593.6 billion won and an operating loss of 32.1 billion won, marking its first deficit in three years since the COVID-19 pandemic.
Kim's investment in Air Premia is estimated to be around 300 billion won. This includes the value of 6,285,627 shares (22%) held by special purpose companies JC Partners and Daemyung Sono, valued at 119.4 billion won, the 46% stake acquired through AP Holdings in 2023 (approximately 80.5 billion won), and a 110 billion won capital increase conducted in July. A source familiar with the matter stated, "Chairman Kim is reportedly asking for at least 400 billion won, reflecting the investment recovery, Air Premia's current revenue nearing 600 billion won, its nine aircraft, and the value of its robust long-haul network centered on North America."
On the other hand, VIG Partners is skeptical. Air Premia recorded a total equity of -46.7 billion won last year, indicating complete capital erosion, and has lease liabilities of 85 billion won maturing within a year. Additionally, the company is currently working on capital expansion to avoid the cancellation of its air transport business license by the Ministry of Land, Infrastructure and Transport due to capital erosion.
Assuming the value of a 70% stake in Air Premia is around 400 billion won, the enterprise value (EV) to EBITDA multiple is estimated to be about 9 to 10 times. This is higher than previous acquisition cases, such as Daemyung Sono Group (7.5 to 8.5 times) and Korean Air (6 to 8 times). VIG Partners argues that it must account for risks associated with aircraft acquisition and operation expansion, increased maintenance costs, and high oil prices and exchange rates in the acquisition price.
Despite the challenges, both parties are determined to proceed with the sale and acquisition. VIG Partners views this transaction as essential for a successful exit from Eastar Jet, which it acquired in 2023. A source familiar with the situation noted, "In light of the intensified competition in the low-cost carrier sector ahead of the launch of the integrated Jin Air, it is impossible to achieve a successful exit with Eastar Jet alone. VIG Partners aims to follow the successful case of JKL Partners, which increased the corporate value of T'way Air for a successful sale, and is looking to sell both Air Premia and Eastar Jet together, suggesting that both sides may need to make concessions to finalize the deal."
* This article has been translated by AI.
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