Uncertain LCC M&A... Jeju Air "Don't Understand" Eastar's Push for Shareholders' Meeting

Jeju Air "Deal Closing Time Not Yet Confirmed" Embarrassment

[Image source=Yonhap News]

[Asia Economy Reporter Yoo Je-hoon] The acquisition of Eastar Jet by Jeju Air, the first merger and acquisition (M&A) case among low-cost carriers (LCCs), remains in a state of uncertainty. Eastar Jet has decided to convene an extraordinary general meeting of shareholders ahead of the acquisition closing date expected at the end of this month, while Jeju Air has not specified the timing of the deal closing.

According to industry sources on the 18th, Eastar Jet has announced to its shareholders that it will hold an extraordinary general meeting on the 26th. This is to prepare the related procedures ahead of the expected acquisition closing date at the end of this month. At the meeting, Eastar Jet is expected to discuss amendments to the articles of incorporation to increase the total number of issued shares from 100 million to 150 million, as well as the appointment of three new directors and one auditor.

According to the acquisition contract, the new director and auditor candidates to be discussed at the extraordinary general meeting must be appointed by Jeju Air, the acquiring party. If the extraordinary general meeting proceeds as planned through this process, the long-stalled Eastar Jet acquisition is expected to regain momentum.

However, it is uncertain whether the extraordinary general meeting will be held as Eastar Jet plans. Jeju Air has expressed confusion and stated that it "cannot understand" Eastar Jet’s decision to convene the meeting regardless of the progress in acquisition negotiations.

A Jeju Air official said, "Corporate merger reviews in places like Vietnam are also delayed, so the deal closing schedule has not yet been finalized," adding, "It is difficult to understand the situation where an extraordinary general meeting is convened to appoint new directors and auditors under these circumstances."

The reason for the stalled acquisition is attributed to Eastar Jet’s unpaid wages amounting to 25 billion KRW. Since February, when the COVID-19 pandemic began in earnest, Eastar Jet has been withholding employee salaries.

Jeju Air is urging Eastar Jet and its major shareholder, Eastar Holdings, to resolve the arrears. Eastar Holdings is a holding company wholly owned by the two children of Lee Sang-jik, a Democratic Party lawmaker (re-elected, Jeonbuk Jeonju-si Eul). Last month, Jeju Air also conveyed the position that "the existing management and major shareholders must show a responsible attitude in resolving the arrears."

Industry insiders speculate that Jeju Air is also burdened by the arrears, as it is not free from the impact of COVID-19. Jeju Air recently borrowed 50 billion KRW in short-term loans for operating funds and debt repayment and is also pursuing a rights offering.

An industry official said, "Although the burden has been somewhat eased by arranging 170 billion KRW in acquisition financing from institutions like KDB Industrial Bank, that is still debt, and more funds will be required for normalization," adding, "For Jeju Air, this means taking on additional uncertainty caused by COVID-19."

Eastar Jet, facing the risk of bankruptcy, also has no clear solution. The major shareholder is reportedly negative about personal financial contributions. Eastar Jet proposed to the labor union and employees a plan to return leave allowances after April on the premise of maintaining employment, but it has met strong opposition.

Industry voices argue that an active stance from the major shareholder is necessary to avoid the worst-case scenario of Eastar Jet’s bankruptcy due to the failed acquisition. Meanwhile, the Eastar Jet labor union plans to hold a press conference in front of the ruling Democratic Party headquarters this afternoon to pressure the major shareholder. They stated, "The responsibility to overcome the COVID-19 crisis lies with the ruling party. Moreover, it is impossible to say there is no responsibility when a member of the National Assembly is directly involved," urging, "Please take a responsible stance."

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