Fair Trade Commission Grants 'Swift Approval' for Jeju-Eastar Airlines Merger (Comprehensive)

"Rapid Response to COVID Shock Considered"
Competition Authorities in Thailand and Others Still Reviewing

[Image source=Yonhap News]

[Asia Economy Reporters Moon Chaeseok and Yoo Jehun] Jeju Air has cleared the domestic hurdle for acquiring Eastar Jet. The Korea Fair Trade Commission (KFTC) approved Jeju Air's acquisition of Eastar Jet after a six-week review.

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 KFTC acknowledged an exception to the competition-restricting corporate merger prohibition stipulated in the same law. By accepting the defense of a non-rehabilitable company, the commission considered that approving the merger is better from a competition promotion perspective than blocking the merger and forcing the company out of the market. At the very least, the company's assets can continue to be utilized in the market upon approval of the merger.

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 negative 63.2 billion KRW. The company had been in a state of capital erosion every year from 2013 through last year. In the previous 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 defects in the Boeing B737 Max 8 model.

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, making it difficult to repay unpaid debts amounting to 115.2 billion KRW as of the end of last month. This implies that basic costs that a normal airline should cover, such as aircraft lease fees, airport usage fees, aviation fuel purchases, and wages, would be burdensome to manage.

Moreover, with the COVID-19 pandemic compounding the situation, all domestic and international routes have been suspended, all employees are on leave, and workforce restructuring is underway, making it difficult to normalize operations and recover the ability to repay debts in the short term. The KFTC also judged that it would be difficult to secure emergency funds from the financial sector. Considering the parent company's financial situation, it is also challenging to raise funds in the capital market through new stock issuance.

For these reasons, the KFTC concluded that it is difficult to find a better alternative than approving the corporate merger with Jeju Air to utilize Eastar Jet's assets in the market. The review was completed six weeks after March 13. According to the KFTC, Jeju Air signed a contract to acquire 51.17% of Eastar Jet's shares on April 2 and filed the corporate merger notification on April 13.

Lee Soongkyu, head of the KFTC's Corporate Merger Division, said, "Considering the difficulties faced by the airline industry due to the impact of COVID-19, we conducted the review as swiftly as possible," adding, "The KFTC plans to expedite reviews of corporate mergers related to markets experiencing management difficulties due to COVID-19."

Meanwhile, Jeju Air is currently awaiting corporate merger approvals from competition authorities in Thailand and Vietnam, where it operates. Once the review procedures in each country are completed, Jeju Air is expected to finalize the remaining acquisition process with acquisition financing support ranging from 150 to 200 billion KRW provided by financial authorities including the Korea Development Bank. However, industry insiders speculate that due to the worsening business conditions caused by the COVID-19 pandemic, it may take more time to complete the acquisition. Eastar Jet has recently begun full-scale restructuring, including laying off about 300 employees.

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