The Daemyung Sono Group, which signed a management acquisition contract for low-cost carrier (LCC) T’way Air, is expected to hold an extraordinary shareholders' meeting next month for its entry into the board of directors. The leading resort corporation in Korea, Daemyung Sono, signed a contract in February this year to acquire a controlling stake in T’way Holdings, the largest shareholder of T’way Air.
However, the entry into the board of directors was unsuccessful at the regular shareholders' meeting of T’way Air held at the end of last month, as it did not receive approval from the Fair Trade Commission for the merger. Observers in the aviation industry speculate that if Daemyung Sono receives approval for the merger, it will have to solve issues such as improving deficits and alleviating minority shareholder opposition.
According to the aviation industry on the 15th, Daemyung Sono plans to hold an extraordinary shareholders' meeting on the 23rd of next month and re-pursue the appointment of eight directors of T’way Air, including Chairman Seo Jun-hyuk. Daemyung Sono proposed the appointment of three internal directors, three other non-executive directors, and two outside directors.
Considering the evaluation that Daemyung Sono has no experience in the aviation industry, all three candidates for internal directors are filled with former employees of Korean Air. Lee Sang-yoon, the current head of the aviation business task force at Sono International, served as the head of the management team for the Americas and the head of the policy planning team in the policy support office at Korean Air. Ahn Woo-jin, the current head of sales and marketing at Sono International, worked at Korean Air in domestic route review analysis and sales planning, while Seo Dong-bin, the current head of the aviation business task force at Sono International, was responsible for regional sales management at the Los Angeles (LA) passenger branch of Korean Air. Chairman Seo is expected to participate in the board as an additional non-executive director.
Daemyung Sono entered into a stock purchase agreement with YeaRimDang to acquire 46.26% of the equity of Tway Holdings at a cost of 250 billion won on February 26. Tway Holdings holds 28.02% of the equity of T’way Air. Daemyung Sono became the second largest shareholder after acquiring 26.77% of T’way Air last year, and now, by acquiring stock in Tway Holdings, it has gained control over a total of 54.79% of T’way Air equity.
Daemyung Sono had planned to receive approval for the merger from the Fair Trade Commission before the regular shareholders' meeting in March to enter the board of T’way Air. However, as the Commission requested supplementary materials and did not grant approval for the merger, Daemyung Sono was unable to enter the board at the regular shareholders' meeting of T’way Air held on the 31st of last month. Daemyung Sono has not yet paid the remaining 25 billion won. If approval for the merger is not granted before the extraordinary shareholders' meeting next month, it is highly likely that the meeting will be postponed.
T’way Air is experiencing declining profitability due to intensified competition among LCCs and increased costs from expanding long-haul routes in Europe. Analysts estimate that T’way Air's revenue for the first quarter will be 428.5 billion won, about the same as last year's first quarter, while operating profit for the same period is expected to have decreased by about 60% to 30.6 billion won.
Typically, the first quarter is peak season for short-haul routes such as Japan and Southeast Asia. However, due to the impact of aircraft accidents involving Jeju Air and AIR BUSAN, there has been a phenomenon of LCC avoidance, leading to intensified fare reduction competition to attract passengers. The increase in operating expenses for long-haul routes taken over from Korean Air and the rising cost burden from the weakening won have also contributed to declining profitability.
The demands of minority shareholders who are pushing for participation in the board of T’way Air are also viewed as challenges that Daemyung Sono must address going forward. Some minority shareholders are opposing Daemyung Sono's plan for a capital increase disclosed during its pursuit of ownership of T’way Air. Through the shareholder action platform ACT, T’way Air's minority shareholders conducted a solicitation activity for proposals for the extraordinary shareholders' meeting until the 10th, but the final gathered equity ratio was 2.98%, falling short of the 3% requirement for shareholder proposals. The Minority Shareholder Alliance plans to continue its activities aimed at appointing audit committee members.
Chairman Seo also has plans to launch a new airline by merging with AIR PREMIA, a carrier focused on long-haul routes to the Americas, after completing the acquisition of ownership of T’way Air. Daemyung Sono is expected to acquire additional equity in AIR PREMIA in June to secure management control.