[Click eStock] Korean Air's Acquisition of Jin Air Seen as 'Positive' Despite High Cost

[Asia Economy Reporter Junho Hwang] Analysts have raised a positive outlook on Korean Air's decision to acquire a 54.9% stake in Jin Air from its parent company Hanjin KAL, suggesting it could be favorable for the airline's stock price. While the premium paid for the acquisition and potential cash outflows due to investment activities of the integrated low-cost carrier (LCC) could be viewed negatively, the purpose of the acquisition and future prospects are assessed positively.

Kang Sung-jin, a researcher at KB Securities, stated in a Korean Air stock report on the 14th, "Korean Air's announcement to acquire a 54.9% stake in Jin Air is positive in that it regains its low-cost carrier business."

With this acquisition, Korean Air will assume the position of an intermediate holding company. Since it plans to incorporate Asiana Airlines and affiliated LCCs in the future, this can be seen as a strategy to pursue synergy through vertical integration of full-service carriers (FSC) and low-cost carriers (LCC).

The integration with Asiana will also become easier. Upon acquiring Asiana, Air Busan and Air Seoul will become subsidiaries of Korean Air. Having Jin Air as a Korean Air subsidiary simplifies the integration process among the three LCCs.

There are also advantages in operating the integrated LCCs. By having them as subsidiaries of Korean Air, which has strong capital mobilization capabilities, the integrated LCCs can smoothly meet their cash demands. As of the first quarter of this year, Hanjin KAL's cash (separate basis cash, cash equivalents, and short-term financial instruments) is about 104.8 billion KRW, whereas Korean Air has secured approximately 4.1 trillion KRW.

However, researcher Kim noted, "The acquisition price of Jin Air is 27.5% higher than Jin Air's closing price on the 13th, which is negative," adding, "There may be cash demands due to the resumption of investments by the integrated LCC, which could pose a financial burden on Korean Air."

This content was produced with the assistance of AI translation services.