Rupture of Eastar Jet deal hits credit card issuers

KB Kookmin Card CEO Lee Dong-cheol, left, and Samsung Card CEO Kim Dae-hwan. / Courtesy of each company

By Park Jae-hyuk

Credit card issuers have fallen unexpected victims to the collapse of the Eastar Jet takeover deal, as they are unlikely to get around 10 billion won ($8.4 million) back from the cash-strapped low-cost carrier, according to industry officials, Tuesday.

After a massive cancellation of flights due to the COVID-19 pandemic, card firms have refunded customers whose flights were cancelled, on behalf of liquidity-crunched airlines which had asked card firms in March to allow a grace period. Back then, officials discussed the matter at the Credit Finance Association headquarters in Seoul.

Other air carriers, including full-service carriers like Korean Air and Asiana Airlines, have repaid card firms since April, but Eastar Jet could not do this due to its severe financial difficulties. Card firms had therefore sought to receive payment later from Jeju Air which signed a deal with Eastar Holdings in March to acquire a controlling 51.17 percent stake in Eastar Jet for 54.5 billion won.

However, Jeju Air abandoned its acquisition of Eastar Jet last month, citing growing uncertainties in the aviation industry caused by the prolonged COVID-19 pandemic.

If card firms fail to get their money back, they will face worsening profits during the latter half of the year.

Although they reported surprise earnings in the first half thanks to the emergency disaster relief funds the government gave to citizens, the companies' performances are expected to deteriorate in the second half because a six-month grace period granted to their customers facing difficulties from COVID-19 will end next month.

To minimize losses, the companies have begun taking legal action.

According to industry officials, Shinhan, KB Kookmin and Samsung cards asked the court late last month to order Eastar Jet to pay its debts. Lotte Card did the same in June. Woori Card demanded Eastar Jet settle its overdue company card payments in May. Hyundai and Hana cards have maintained wait-and-see attitudes.

Sources said KB Kookmin and Samsung each should receive 2 billion won from the low-cost carrier while Hyundai should receive 1.3 billion won, Shinhan 800 million won, Lotte 500 million won and Hana 400 million won.

Card firms admitted they did not expect to get their money back in such a short time. But they took legal action to verify their rights to creditors when Eastar Jet goes into liquidation. They are also considering writing off the bad debts.

Eastar Jet's debts are estimated at around 170 billion won. This includes delayed payments for fuel and the use of airport facilities, as well as unpaid wages that total about 26 billion won. The budget carrier, which has halted its international flights since March 9, has not resumed domestic flights since March 24, in contrast to other airlines that have increased domestic flights.