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Product cover image for Singapore Airlines: In Talks to Invest in Jeju Air

Singapore Airlines: In Talks to Invest in Jeju Air

Ruth S.K. Tan; Zsuzsa R. Huszar; Weina Zhang

Product #:9B15N013_P
Supplier:Ivey/NUS
Discipline:Finance, International Business
Setting:South Korea, 2015
Details:Case (PDF) • 11 pages • 2015-08-26 (Rev: 2015-08-25)

Subjects:

Business managementFinance and investingInternational business

Industries:

Transportation and distribution

Geography:

South KoreaAsia
Your Price:$9.71

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Jeju Air is a market leader in the South Korean low-cost carrier industry, operating more than 20 domestic and international air routes in Asian countries. In the midst of rising economic activity and the opening of more air routes in North Asia, Jeju Air is planning an initial public offering to seek capital to grow its China business.

Meanwhile, Singapore Airlines is in discussions to purchase a 20 per cent equity investment in Jeju Air. Is this investment a wise decision for Singapore Airlines? Additionally, what is Singapore Airlines’ future outlook in terms of its existing underperforming subsidiaries?

Learning Objectives

This comprehensive valuation case is suitable for use in an advanced undergraduate or MBA course in corporate finance or financial management. It presents an opportunity for students to:
  • Unlever the beta (i.e., remove the financial risk) to determine the business risk of the low-cost carrier industry.
  • Relever using the target capital structure and then compute the weighted average cost of capital.
  • Review the discounted cash flow valuation of the entire company, including an estimation of its free cash flows, revenue growth rates and terminal growth rates, and perform sensitivity/scenario analyses on some of the assumptions.
  • Conduct a relative valuation analysis using various peer multiple methods.
  • Gain an understanding of the low-cost carrier industry.
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Case Study: Singapore Airlines: In Talks to Invest in Jeju Air | Ivey Publishing