Korea’s ailing small budget carrier T’way Air is seeking foreign capital to get back on track, rekindling controversy over the possiblility of the first foreign control of a Korean airline.
According to industry sources on Monday, Yearimdang, a major publisher that acquired T’way Air last month in a consortium, is currently in talks with five foreign-owned business for new investment.
With the Singapore-based Tiger Airways cited as the most likely bidder, the final result of the deal is expected to come out next month.
Tiger Airways, partially owned by Singapore Airlines, owns and operates pan-Asian airline Tiger Airways as well as the Australian domestic airline, Tiger Airways Australia.
Like in other countries, the Korean government does not allow foreign capital to own a local air carrier, limiting their allowable company shares to 49 percent or less.
Industry watchers, however, say it seems unavoidable that Tiger Airways would be involved in important management decisions as Yearimdang has almost no expertise in airline operation.
“Operating aviation routes is discussed through bilateral talks of each government. Potential foreign ownership of a local airline company could hurt Korea’s national interest,” said an industry source, citing national security.
The Ministry of Transport, Land and Maritime Affairs has maintained a neutral stance, pledging to look into the funding process carefully.
Another concern is the intensifying competition in low-fare airlines here.
The nation’s five budget carriers ― Jeju Air, Jin Air, Air Busan, Eastar Jet and T’way Air ― are facing financial difficulties due to the huge initial investment and high-flying fuel costs.
The largest, Jeju Air owned by Aekyoung Group, logged 93.6 billion won in sales in the third quarter last year, up 18.9 percent from the same period 2011. The operating profits, however, shrank from 12.9 billion won to 4.4 billion won.
Eastar Jet is also struggling financially as its parent company KIC, the steelmaker, suffered an accumulated loss of 36 billion won as of the third quarter last year.
Adding to the concerns, foreign companies equipped with worldwide networks are upping their offensive in Korea where the number of Chinese and Japanese travelers are soaring in recent years.
“Companies, especially foreign airlines, are betting big to secure more routes in the lucrative Korean market. There could be less room for smaller Korean firms,” said another industry official.
“Premium airlines such as Korean Air and Asiana Airlines could face a new threat if low-budget carriers dominate shorter routes to Asian countries in the coming years.”
By Lee Ji-yoon (email@example.com