Jeju-Istar Air Merger Review 'Fast Approval' in 6 Weeks... "Exception Recognized Due to Insolvency"

Eastar Jet Recognized as a Company Unable to Rehabilitate Under Fair Trade Act
Deemed Better to Save Than Exit Market for Competition Promotion
Financial and Management Recovery Difficult, No Clear Buyers Except Jeju Air
"Prompt Review of Market-Related Mergers Amid COVID-19 Financial Struggles"

The ticket counter of Eastar Jet at the domestic terminal of Gimpo Airport in Gangseo-gu, Seoul, on the 24th of last month, when Eastar Jet became the first domestic airline to declare a shutdown. / Photo by Moon Honam munonam@

[Asia Economy Reporter Moon Chaeseok] As the spread of the novel coronavirus infection (COVID-19) fuels crisis talks in key industries such as aviation, competition authorities have also accelerated their review of major corporate mergers. The Korea Fair Trade Commission (KFTC) announced that it has decided to approve Jeju Air's acquisition of Eastar Jet. This rapid approval came just six weeks after the merger notification, acknowledging that Eastar Jet is a company that cannot be rehabilitated under the Fair Trade Act.

On the 23rd, the KFTC announced that Eastar Jet was recognized as a "company that cannot be rehabilitated" under the Fair Trade Act, and thus approved the corporate merger with Jeju Air. The commission accepted an exception to the competition-restricting merger prohibition stipulated in the same law. This system applies the recognition of the defense of a company that cannot be rehabilitated, approving the merger on the grounds that it is better from a competition promotion perspective than leaving the company to be excluded from the market due to a merger ban. At the very least, the company's assets can continue to be utilized in the market during the year the merger is approved.

The KFTC explained that it approved the merger considering Eastar Jet's extremely poor financial and management conditions and the lack of other potential buyers besides Jeju Air. As of the end of last year, Eastar Jet's total capital was -63.2 billion KRW. It had been in a state of capital erosion every year since 2013. Last year, it recorded an operating loss of 79.3 billion KRW. It was hit hard by the boycott movement caused by Japan's export restrictions and the suspension of operations due to the Boeing 737-MAX defect incident.

There are also insufficient assets to repay debts. The KFTC stated that Eastar Jet's tangible assets at the end of last year were only 45 billion KRW, and judged that it would be difficult to repay unpaid debts amounting to 115.2 billion KRW as of the end of last month. This implies that even basic costs that a normal airline should cover, such as aircraft lease fees, airport usage fees, aviation fuel purchases, and wages, would be difficult to bear.

Moreover, with the added impact of COVID-19, including the suspension of all domestic and international flights, employee furloughs, and workforce restructuring, it was deemed difficult for Eastar Jet to normalize operations and recover its ability to repay debts in the short term. It was also judged that securing emergency funds from the financial sector would be challenging. Considering the financial situation of the parent company, raising funds through new stock issuance in the capital market was also considered difficult.

There were no other potential buyers besides Jeju Air. Therefore, the KFTC judged that it would be difficult to find other options to utilize Eastar Jet's assets in the market with less competition restriction than approving the merger with Jeju Air.

This merger review was completed in six weeks. According to the KFTC, Jeju Air signed a contract to acquire 51.17% of Eastar Jet's shares on the 2nd of last month and filed the merger notification on the 13th of the same month.

Lee Soong-gyu, head of the KFTC's Corporate Merger Division, said, "Considering the difficulties faced by the aviation industry due to the impact of COVID-19, we conducted the review as quickly as possible," adding, "The KFTC plans to promptly review corporate mergers related to markets experiencing management difficulties due to COVID-19 in the future as well."

This content was produced with the assistance of AI translation services.