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By Anna J. Park
Private equity firms (PEFs) opted to invest huge sums of money into low-cost carrier (LCC) businesses amid the worst hardships stemming from the pandemic. Now that international travel numbers are again soaring, the PEFs are eyeing a successful exit from their LCC stakes in the coming years.
VIG Partners injected 110 billion won ($89 million) into Eastar Jet, a Korea-headquartered LCC, aiming to improve its s financial structures and set up a new management system. The local PEF signed the deal early this year to acquire a 100 percent stake in the airline for 40 billion won. It has since decided to contribute further capital to increase air routes and expand its fleet.
Founded in 2007, Eastar Jet had been logging solid growth until 2017, operating international flights with a cumulative number of passengers exceeding 10 million in 2014. Yet during the pandemic, the firm went into a corporate rehabilitation procedure, and it desperately needed a new capital injection for steady management. With the new capital increase of 110 billion won, the company is expected to be out of its capital impairment situation.
VIG Partners expects the LCC to yield stable profits again soon, once it earns back the land ministry's air operator certificate (AOC) license ― an approval granted by the nation's aviation authority for airlines.
Likewise, JKL Partners invested 80 billion won in 2021 into T'way Air, a local LCC, becoming its second-largest shareholder. A year later, it put in an additional 21.7 billion won, increasing its stake to the present 21.24 percent. The PEF expects the airline to log improved profits, as demand for long-distance international flights recovers.
T'way Air ended last year with an operating loss. Yet its new Incheon-Sydney route, launched in November, as well as the increase of high-demand Japan routes could result in improved earnings this year.
"In addition to the increased average selling price of flight tickets, the soaring consumer demand for international travel is expected to yield solid earnings for local LCCs this year," a market watcher said.
Meanwhile, JC Partners, a local PEF that acquired a 51.5 percent stake in Air Premia in 2021, expects to make a successful exit from the LCC this year, as its corporate value surges on the popularity of its new route between Incheon and Los Angeles. JC Partners is said to be currently holding talks with potential buyers of its stake in the LCC.
