M&A Stalled by Unpaid Wages... D-7 Until Eastar Deal Deadline

Jeju Air "Eastar Major Shareholders and Management Must Take Responsibility"

[Image source=Yonhap News]

[Asia Economy Reporter Yu Je-hoon] Jeju Air's acquisition and merger (M&A) process with Eastar Jet is stalling over the issue of unpaid wages, even with just a week left before the transaction deadline. Industry insiders worry that if this situation continues, the M&A itself could collapse.

According to the aviation industry on the 22nd, Jeju Air and Eastar Holdings (the holding company of Eastar Jet) are still engaged in a tug-of-war over the issue of unpaid wages for employees ahead of the transaction closing date, reportedly set for the 29th. Since the outbreak of COVID-19 in February, Eastar Jet has been unable to properly pay its employees' wages. After suspending all flight routes from March 24, the accumulated unpaid amount has grown to about 25 billion KRW.

Jeju Air views the unpaid wages issue as a problem prior to the transaction closing date and, in principle, believes it is the responsibility of Eastar Jet’s management and major shareholders. On the other hand, Eastar Jet insists that according to the acquisition contract, Jeju Air should bear the burden.

As this situation continues, Eastar Jet’s management held a labor-management meeting on the 27th of last month and proposed that employees return their leave allowances for April to June. Although the management stepped back due to strong opposition from workers, there are rumors that Eastar Jet proposed to Jeju Air to share the unpaid wages based on this premise.

However, it is uncertain whether this plan will materialize, as the workers’ side, including the Eastar Jet Pilots’ Union, does not agree to the return of leave allowances for April to June. Jeju Air also maintains its existing position. A Jeju Air official stated, "Due to a confidentiality agreement, we cannot disclose detailed information," but emphasized, "In principle, the unpaid wages issue should be the responsibility of the existing management and major shareholders."

With the gap between the two sides unresolved, some are raising the possibility of the acquisition falling through. Recently, Jeju Air’s situation has also become difficult. To secure operating funds, Jeju Air recently decided on a short-term loan of 50 billion KRW and also launched a paid-in capital increase worth 170 billion KRW. Even if it proceeds with the acquisition supported by 170 billion KRW in acquisition financing, a significant amount of cash will need to be invested to normalize Eastar Jet, which is a considerable burden.

In particular, if both Jeju Air and Eastar Jet agree, the deadline can be extended by three months, but if the dispute continues, the amount of unpaid wages will only increase monthly. A union official said, "If the three-month extension is granted, the unpaid wages will increase accordingly," adding, "As the actual owner, Representative Lee Sang-jik of the Democratic Party must resolve the unpaid wages issue and take responsibility."

Meanwhile, the longer the acquisition is delayed, the worse Eastar Jet’s management environment becomes. Eastar Jet has not operated any aircraft for 60 days since March 24, and as of the 23rd of last month, its Air Operator Certificate (AOC) has been suspended. Renewing it takes about three weeks, but the related procedures have not yet been initiated.

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