In June last year, the enforcement decree of the Aviation Business Act was revised, paving the way for domestic small airlines to operate with guaranteed revenue. The upper limit of the number of seats for small airlines, which was only 50 seats, has been increased to 80 seats. This allows them to carry more passengers each time a plane takes off.
With the amendment to the law, a green light was also turned on for the future of the domestic small airline, Semair. With the foundation laid for improved revenue, the company successfully attracted investments, and in February of this year, it acquired a small airline transport business license from the Ministry of Land, Infrastructure and Transport. Semair, which is currently preparing to obtain an Air Operator Certificate (AOC), is experiencing its busiest period since its establishment in 2022.
On the 27th of last month, I met with CEO Choi Yong-deok at Semair's headquarters in Gangseo District, Seoul. CEO Choi's background is unique. He has worked at prestigious global investment banks such as Barclays, ABN AMRO, and Merrill Lynch (now Bank of America) since 2004. Having transformed from banker to pilot and now to airline CEO, Choi notes, "The essence of the aviation industry is finance."
─What led to your decision to found an airline while working in finance?
"The first trigger was flying on a friend's private plane in Australia in 2003. The scene has remained in my memory ever since. Eventually, after quitting Merrill Lynch in 2009, I used my gardening leave period to obtain my private pilot license (PPL) in the United States, and then after working at Barclays, I left in 2015 and acquired my commercial pilot license (CPL)."
In 2017, I passed the pilot selection for the low-cost airline Aero K, but by the end of that year, Aero K failed to obtain a business license from the Ministry of Land, Infrastructure and Transport. As a result, I could not work as a pilot and was assigned to promote the acquisition of a business license in the management planning department. At that time, Aero K was preparing to acquire a small airline license, and while working on that, I thought, "I could challenge myself by starting my own company."
─There must have been many challenges after starting the business.
"Since establishing the company in January 2022, I have faced several critical junctures. We hired over 20 employees and recruited up to 6 pilots, but due to challenging circumstances, some had no choice but to leave. It was difficult because we did not secure enough funding for business expansion."
However, in May last year, a major turning point occurred with the revision of the enforcement decree of the Aviation Business Act. Previously, companies operating aircraft with 51 or more seats were classified as large airlines and subject to various regulations, but the law was amended last May, relaxing the criteria for operating small aircraft. Now, aircraft with between 50 and 80 seats can be operated by small airlines. For small airlines, this means they can fully utilize the aircraft's capacity.
─How much investment have you received so far?
"The initial investor was Dunamu & Partners. In 2022, we received 1 billion won in investment. Additionally, Delta Next invested 1.5 billion won. After facing difficulties in funding, last year we received 3.3 billion won from a listed company in the securities market. So far, we have raised a total of 7 billion won in investments. It took some time to gain trust from the investors, but now they are confident in our business model and vision and are supportive of us."
─How many aircraft have you contracted so far? Also, please tell us about the routes.
"We have contracted for 9 aircraft. We decided to lease one first and signed a purchase contract for an additional 8. It costs about 30 billion won per aircraft. We plan to gradually increase the number of aircraft. Starting with routes to Ulleungdo and Heuksando, we will develop routes connecting various regional airports, including Gimpo and Ulsan, Pohang, and Yeosu. By the end of 2026, we also plan to start international flights, beginning with close overseas routes like Tsushima."
Ulleungdo and Heuksando have a unique airport environment, and therefore, routes that are not operated by large airlines. With a runway length of 1,200 meters, large airlines cannot operate there. We aim to target these airports and provide differentiated services compared to our competitors. An important point for these island routes is the slot. By securing slots, we can prioritize our flight rights at desired times.
─What similarities exist between the aviation and finance industries?
"There are many similarities in asset management, risk management, and revenue models. Airlines also purchase or lease aircraft to operate, and asset management is required in this process. Operating aircraft is similar to managing assets and diversifying risks in the finance industry."
In the aviation industry, it is common to operate aircraft through leasing. Aircraft are fixed assets that require regular maintenance and repairs, and efficiently managing the expenses incurred during this process is crucial. Because there are many external variables, such as fuel prices and weather conditions, effectively managing these risks is also key.
─I am curious about the differences between financial leases and operating leases. Can you explain the differences?
"A financial lease literally means leasing an asset in a financial manner when purchasing an aircraft. It is very similar to the asset-backed security (ABS) method with credit cards."
In contrast, an operating lease is a method of renting an aircraft for a certain period and returning it later. An important point in operating leases is that there are specific return conditions. For example, maintenance must be performed according to a set timeline, and failing to meet these conditions can result in significant penalties. This means that operating leases require more knowledge about aircraft compared to financial leases.
In our case, we bring in the first aircraft through an operating lease. The rest are through financial leases. We first purchase the aircraft and then lease it out to other companies as an operating lease. This structure covers expenses through the revenue generated.
─What are your plans for follow-up investment attraction?
"We are planning to raise a funding of at least 6 billion won to 10 billion won. We will be working on airline expansion, improving our business model, and acquiring licenses."