Korean PEFs raise bets on pandemic-hit aircraft sector

The aviation industry, one of the hardest-hit sectors by the global pandemic, is now whetting the appetite of South Korean private equity firms which have begun to prepare for post-pandemic portfolios.

IMM Investment Corp.'s aircraft operating and leasing joint venture, Crianza Aviation, has recently bought three airplanes from Singapore Airlines, according to the company and industry sources on Apr. 22. They are new widebody aircraft from Boeing Co. and Airbus SE. Institutional investors and banks at home and abroad financed the purchase.

"The aviation industry has been undergoing the worst correction in its history, but we believe it will make a recovery starting this year," an IMM Investment source told Market Insight, the capital news arm of The Korea Economic Daily.

Crianza Aviation, founded in 2016, is a joint venture between two Seoul-based investment firms -- IMM and and Cerritos Holdings.

To improve its portfolio management, Crianza has acquired Germany's EastMerchant specializing in aircraft investments and structured leasing transactions.

"Most of the top-ranked aircraft leasing companies are owned by banks, which indicates the stability and growth potential of the aircraft leasing business," said one of the investment banking sources. "With the aviation industry currently at the bottom of its business cycle, now is a great opportunity to make additional purchases of aircraft to maximize our portfolio value." 

In negotiations to purchase the three planes from Singapore Airlines, Crianza Aviation had gained the upper hand because they entered into talks last year at the height of the global pandemic, according to the sources.

Including the three Singapore Airlines-leased aircraft, Crianza Aviation now has a fleet of 15 planes with a combined value of 2 trillion won ($1.8 billion). The joint venture managed to eke out a 5 billion won net profit in 2020, despite the valuation losses caused by the COVID-19.

JKL PARTNERS

As the rollout of the COVID-19 vaccines is raising expectations of economic recovery, Korean PEFs are scurrying to buy airline assets before they recover from the sector's worst downturn caused by travel restrictions. 

Last month, JKL Partners invested 80 billion won in T’way Air to become the No.2 shareholder in the budget airline in South Korea. That followed the Korean private equity firm's 40 billion won investment in a domestic aircraft parts manufacturer, Yulkok Co., in 2020.

Seoul-based JC Partners and Hong Kong-based Korchina Logistics Holdings Ltd. are jointly seeking a management buyout of an unfledged Korean budget carrier Air, Premia Inc. Both companies plan to pump 65 billion won in installments into the airline to secure a 68.9% stake.

Last year, Hahn & Co. acquired Korean Air Lines Co.'s in-flight duty-free and meal service business for 990.6 billion won, put up for sale to ease liquidity problems at the country's flag carrier.

Write to A-Young Yoon at youngmoney@hankyung.com
Yeonhee Kim edited this article.