US hedge fund calls on Korean Air to sell baggage handling unit

  • 2020-05-11

A US hedge fund with a stake in Korea Airport Service Co. Ltd. (KAS), a majority owned by Korean Air Lines Co. Ltd., is calling on the carrier to sell the profitable but non-core unit as part of self-rescue measures to be unveiled.

Describing KAS with a market value of 161.5 billion won ($132 million) as a hidden jewel, Stone Forest Capital LLC’s chief investment officer Brad Lindenbaum said in a recent telephone interview that cash-strapped Korean Air needed to put the valuable unit on the market, in return for receiving a 1.2 trillion won bailout from state-run banks.

KAS, listed on the Korea Stock Exchange, provides baggage handling, ground handling, cleaning, fueling and deicing services.

Under a new owner, the company will be able to improve its operating profit margin from last year’s 4.15% which was lower than its competitors in other countries, Lindenbaum told the Korean Investors.

As a minority shareholder, Stone Forest Capital proposed in February that KAS create an independent sub-committee to review material transactions with KAL and members of the parent Hanjin Group.

But KAS had rejected it, saying the proposal failed to meet the requirements specified in commercial law and articles of incorporation for a shareholder.

The New York-based hedge fund, with $178 million under management, has been holding a stake of less than 5% in KAS since last year.

Korean Air owns 59.54% of KAS, worth at 96 billion won at the current market price.

Most of its revenues stem from two affiliated companies — Korean Air and budget carrier Jin Air Co. Ltd.

Cashable assets and real estate and investment portfolios at KAS are estimated at 200 billion won, according to Research Arum, an independent research firm. It expects Korean Air to include the unit in the list of assets to sell.

Last year, KAS posted an operating profit of 22 billion won against revenues of 528.9 billion won. Its debt-to-equity ratio stood at 43%.

NOT HIGH ON THE LIST

Analysts say KAS is unlikely to come on the market until Korean Air sells the three key divisions of in-flight catering, loyalty program and maintenance services.

Creditor banks are urging the carrier to sell the SKYPASS frequent flyer program, but Korean Air remains cautious about the possible sale, according to industry sources.

By Sang-eun Lucia Lee

selee@hankyung.com

<Edited by Yeonhee Kim>