Jeju Air Officially Abandons Acquisition of Eastar Jet "Uncertainty Was Too Great" (Comprehensive)

Legal Battle Expected Over Performance Bond and Others

[Image source=Yonhap News]

[Asia Economy Reporter Yoo Je-hoon] Jeju Air officially announced on the 23rd that its acquisition and merger (M&A) of Eastar Jet has fallen through. As a result, the merger of the two airlines, which had attracted attention as the first restructuring attempt between domestic airlines, has collapsed after about seven months of discussions.

Jeju Air disclosed on the 23rd that it would terminate the Stock Purchase Agreement (SPA) signed with Eastar Holdings on March 2nd. Eastar Holdings is a holding company that owns 39.6% of Eastar Jet's shares.

Jeju Air stated, "Despite the government's active support and mediation efforts, we judged that the uncertainties to bear are too great to proceed with the acquisition under the current circumstances," adding, "We regret that this M&A did not bear fruit."

The M&A between the two companies, which began in December last year, attracted industry attention as the first corporate merger attempt in the domestic aviation industry suffering from oversupply. Jeju Air, which owns 45 aircraft and is the largest low-cost carrier (LCC) in Korea, had presented a blueprint to achieve economies of scale through the acquisition of Eastar Jet, which owns 23 aircraft.

Lee Seok-joo, former CEO of Jeju Air (currently CEO of AK Holdings), stated at the time, "We plan to expand passenger market share and maximize efficiency through the acquisition of Eastar Jet to solidify our leading position in the LCC market."

However, the unexpected outbreak of the novel coronavirus disease (COVID-19) caused the M&A to start faltering. Eastar Jet began delaying employee wages from February and eventually suspended all domestic and international flights at the end of March.

From May, as the accumulated unpaid wages issue intensified, M&A negotiations between the two sides were effectively halted. Lee Sang-jik, a member of the Democratic Party of Korea and the actual major shareholder of Eastar Holdings, made a bold move to donate his shares, but Jeju Air issued a final ultimatum stating that if unpaid debts worth about 170 billion KRW were not resolved within 10 business days, the contract would be terminated.

With the M&A falling through, the two companies are likely to enter legal battles over the return of the performance bond (11.5 billion KRW) paid by Jeju Air to Eastar Jet and responsibility for the shutdown. It is reported that both sides have been preparing for this through law firms. An LCC industry insider said, "Since May, face-to-face negotiations between the two sides have effectively stopped," adding, "The process so far has been nothing more than both sides building their own justifications with the failure of the acquisition in mind."

Meanwhile, the future of Eastar Jet, whose acquisition bid has ultimately failed, has become uncertain. While support from Jeollabuk-do Province and the search for a third-party buyer have been mentioned, the industry views that Eastar Jet is more likely to apply for court receivership and be liquidated. In that case, about 1,600 Eastar Jet employees could also face the risk of unemployment.

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