Jeju Air abandons acquisition of Eastar Jet
A Jeju Air jet is parked in front of an Eastar Jet plane at Incheon International Airport, July 7. / Yonhap
Eastar Jet with 1,600 employees on brink of bankruptcy
By Jun Ji-hye
Jeju Air has abandoned its acquisition of cash-strapped Eastar Jet due mainly to growing uncertainties in the aviation industry caused by the prolonged COVID-19 pandemic, officials of the low-cost carrier (LCC) said Thursday.
Following Jeju Air's decision to back out of its share purchase agreement signed with Eastar Holdings, NH Investment & Securities analyst Jeong Yeon-seung said, “Eastar Jet, which has fallen into a state of capital impairment, is highly likely to go bankrupt.”
This would result in about 1,600 employees of Eastar Jet losing their jobs.
A Jeju Air official said it was regrettable that the firm's acquisition plan has failed to come to fruition despite the government's intention to offer support and its efforts to mediate.
“We made the decision because the uncertainty that Jeju Air needs to bear is too much, and this could hurt our shareholders and other interested parties,” the official said.
In March, Jeju Air signed a deal with Eastar Holdings to acquire a controlling 51.17 percent stake in Eastar Jet for 54.5 billion won.
But the procedures to complete the acquisition have since made slow progress, as the two air carriers have been at odds during their negotiations over a number of thorny issues, including responsibility for unpaid wages for Eastar Jet employees.
Eastar Jet's debts, estimated at about 170 billion won ($142 million), include the company's delayed payments for fuel and the use of airport facilities as well as the unpaid wages that total about 24 billion won.
On June 29, Eastar Jet founder Lee Sang-jik, who is also a lawmaker of the ruling Democratic Party of Korea, announced a decision made by the founding family members to contribute all their shares to “save” the debt-ridden budget carrier.
Lee's son and daughter collectively own a 38.6 percent stake in Eastar Jet through the firm's holding company, Eastar Holdings. The daughter who is the CEO of the holding company holds a 33.3 percent stake in it, while the son holds 66.7 percent.
Rep. Lee said his family would “donate” their entire stake, worth around 41 billion won, to the troubled company.
This, however, failed to resolve the situation, and the founding family members have been facing suspicions that Eastar Holdings acquired its stocks in the budget carrier using illegitimate means.
On July 1, Jeju Air sent a de facto ultimatum to Eastar Jet, asking it to settle all of its debts in the following 10 working days to proceed with the deal.
As Eastar Jet failed to meet the conditions by the July 15 deadline, Jeju Air said the following day that it “has the right to cancel the share purchase contract.”
KB Securities analyst Kang Seong-jin said Jeju Air seemed to make the right decision, saying, “It was expected the acquisition of Eastar Jet would impose a heavy financial burden on Jeju Air.”
Regarding the issue, an Eastar Jet official said, “We will mobilize every possible means to resolve the situation.”
Airline industry officials said the two companies are expected to undergo court battles over responsibility for the cancellation of the acquisition deal.