Close competition is predicted among the four domestic low-cost carriers vying for the acquisition of Asiana Airlines' cargo division, with Air Premia and Air Incheon emerging as the prime contenders, according to industry sources on Thursday.

Financial services firm UBS, which is overseeing the sale of Asiana Airlines' cargo division, recently selected four LCCs -- Jeju Air, Eastar Jet, Air Premia and Air Incheon -- as shortlisted candidates for the acquisition.

The decision follows the European Commission's “conditional approval” of Korean Air's merger with Asiana Airlines in February. The approval was contingent upon the divestment of Asiana Airlines' cargo freighter business and the turning over certain airport slots.

As the market closely watches all four contenders, recognizing the significant value-up opportunity the deal presents, opinions are split regarding the feasibility of LCCs acquiring the division, given the variable circumstances of the carriers.

Industry sources view that Jeju Air's participation in the preliminary bidding may have been encouraged by the Korea Development Bank to bolster competition among major LCCs, rather than from a pure intention to acquire the cargo business.

Jeju Air faces a challenge with the Fair Trade Commission since the carrier already occupies a substantial domestic cargo share of some 11.6 percent. Furthermore, industry sources suggest that acquiring Asiana's cargo division appears unlikely due to the financial constraints faced by its parent firm, Aekyung Group. Aekyung Group's holding company, AK Holdings, has reportedly pledged a substantial 45.22 percent stake in Jeju Air to raise funds for its affiliates.

Meanwhile, Eastar Jet is expecting funding from VIG Partners, a private equity fund that holds a 100 percent stake in Eastar Jet. To achieve this goal, the company intends to establish a blind fund and has reportedly secured around 500 billion won ($375 million). VIG Partners utilized similar blind funds in its acquisition of Eastar Jet last year.

However, the firm's acquisition prospects are also seen as uncertain due to its lack of experience in the cargo business.

"Eastar Jet is the only company among the four shortlisted firms that lacks an air operator's certificate," a source familiar with the matter said on condition of anonymity. "But it is not an impossible gamble, as the European Union has requested the buy-out to be completed before the year-end, and the immediate operation (of the cargo business) is not required."

Given the limitations faced by both firms, the acquisition appears to be shaping up as a competition between Air Premia and Air Incheon.

Despite their smaller sales and assets figures compared to the other LCCs, both companies possess expertise in the cargo business and have demonstrated a strong commitment to the acquisition. The key determinant of their success will lie in each company's ability to secure the funds.

Asiana Airlines, equipped with 11 cargo aircraft, estimates the sale of its cargo division to fall between 500 billion won and 700 billion won. However, with the division's debt standing at 1 trillion won, acquiring it would require approximately 2 trillion won.

The low-cost carriers are seeking opportunities to partner with strategic and financial investors. However, domestic restrictions block the influx of foreign capital, including limitations on the ownership stake that can be held by foreign nationals and foreign corporations, which is usually capped at less than 50 percent, according to Korean law.