This article was published on May 20, 2025, at 5:02 p.m. on the ChosunBiz MoneyMove site.
Tire Bank affiliate AP Holdings has decided to acquire a 70% equity stake in the low-cost carrier (LCC) Air Premia, while also conducting a paid-in capital increase and a reduction of capital of up to 100 billion won within the year to resolve its capital erosion. The increase and reduction are expected to be completed around September, prior to the deadline for paying the acquisition price.
◇ Simultaneous execution of 100 billion won paid-in capital increase and reduction of capital
According to investment banking (IB) industry sources on the 20th, Air Premia’s largest shareholder AP Holdings plans to execute a paid-in capital increase of 50 billion to 100 billion won in the second half of this year. A reduction of capital will also be conducted, but the rate has not yet been determined.
The paid-in capital increase and the reduction of capital have mutually complementary accounting effects. It is common practice to reduce capital and losses through a reduction of capital before proceeding with a paid-in capital increase.
Air Premia is in a state of capital erosion. As of the end of last year, its capital erosion rate neared 81%. Capital erosion refers to a condition where total capital (net worth) is less than paid-in capital. In the case of listed companies, if the capital erosion rate ((capital - total capital)/capital X 100%) exceeds 50%, they are designated as management items, and if it reaches complete capital erosion (capital erosion rate over 100%), the listing may be revoked.
An industry source noted, “While the capital of other LCC companies is between 30 billion and 50 billion won, Air Premia’s capital exceeds 140 billion won, creating a situation that is too large and inefficient.”
The simultaneous execution of a paid-in capital increase and a reduction of capital is also a card Air Seoul is considering. On the 13th, Air Seoul held a board meeting and approved a paid-in capital increase of 180 billion won along with a reduction of capital that would reduce 8 shares to 1.
◇ The company says, “No cash flow problems… additional purchase of 4 spare engines”
Air Premia has repeated cancellations due to aircraft maintenance and safety inspections since last year, leading industry analysts to conclude that the company is suffering from serious financial difficulties.
However, the company explained, “It’s just a misunderstanding” and “There are no issues with cash flow.” According to an Air Premia official, the company currently contracts with Rolls-Royce for engine maintenance. The structure is to send engines to Rolls-Royce whenever maintenance is needed and temporarily receive spare engines worth 50 billion to 60 billion won.
An official from the company explained, “While Rolls-Royce is responsible for engine maintenance, delays in the provision of spare engines have become common due to disruptions in the global aircraft engine supply chain.”
Although engine maintenance is the responsibility of Rolls-Royce, as the provision of spare engines continues to be delayed, Air Premia has additionally purchased three spare engines in February and April of last year and this year. It is also planning to purchase another one in July.
Meanwhile, AP Holdings is in a situation where it needs to spend 120 billion won to acquire a 22% equity stake in Air Premia from Daemyung Sonogroup. It is reported that the acquisition cost will be transferred from Tire Bank to AP Holdings. Issuing convertible bonds (CB) is being discussed as a likely option. When AP Holdings acquired a 30.42% equity stake in Air Premia from JC Partners and others last year, Tire Bank purchased 53.3 billion won worth of the CBs issued by AP Holdings, which amounted to a total of 81 billion won.