Increasing Listings of LCCs... Success Remains 'Gle-sse'

Eastar to Pursue M&A by Next Month
'Possible Separate Sale' Air Busan and Others Also Mentioned as Assets

As Eastar Jet notified 605 employees of layoffs, raising concerns about mass unemployment in the aviation industry, officials are entering the temporary shareholders' meeting held on the 9th at Eastar Jet headquarters in Gangseo-gu, Seoul. Photo by Hyunmin Kim kimhyun81@

[Asia Economy Reporter Yoo Je-hoon] Recently, there are signs that the number of low-cost carrier (LCC) listings in the mergers and acquisitions (M&A) market is increasing. This is due to the failure of all major M&As conducted inside and outside the aviation industry. However, since the novel coronavirus disease (COVID-19) crisis that has pushed the industry to the brink of collapse has entered a prolonged phase, the possibility of a successful M&A is not considered high.

According to the aviation industry on the 14th, Eastar Jet recently distributed investment briefing documents to companies that expressed acquisition intentions and plans to hold an investment presentation for them soon. After Jeju Air withdrew from the acquisition in early last month, Eastar Jet selected Deloitte Anjin, Yulchon LLC, and Heungkuk Securities as the lead sales agents and is currently pushing for resale.

For this resale, Eastar Jet laid off 605 employees, equivalent to 50% of its total workforce, and has prepared a mid-term plan to reduce its fleet to six aircraft and resume operations. It is reported that several parties, including mid-sized private equity funds (PEFs), have expressed interest in acquiring Eastar Jet. Recently, SM Group, a frequent player in the M&A market, has also been mentioned as a potential candidate.

An Eastar Jet official explained, "We aim to select a preferred negotiation partner by the end of this month, sign a memorandum of understanding (MOU) for acquisition by mid-next month, and based on that, inject funds to apply for an Air Operator Certificate (AOC)." He added, "Whether to file for court receivership in the future depends on the intentions of the new acquirer."

However, there are many skeptical views inside and outside the industry about whether the M&A will actually proceed smoothly. This is because various unpaid amounts reaching 200 billion won remain as de facto debts, and an additional investment of around 20 billion won is required to resume operations. A representative from a company classified as a potential acquirer hinted, "Even if we consider the actual acquisition, given Eastar Jet's situation, it is indeed a burdensome asset."

In particular, the recent opposition party attacks related to Lee Sang-jik, the founding member and Democratic Party lawmaker, are also one of the biggest obstacles. Even Lee Nak-yon, the Democratic Party leader, warned at the Supreme Council meeting held at the National Assembly that morning, saying, "I hope Representative Lee, as the founder and a lawmaker, takes responsible measures that the public and employees can accept."

Due to the fallout from the failed M&A of the parent company Asiana Airlines, Air Busan and Air Seoul are also consistently mentioned as candidates for separate sales, though not immediately. In the case of Air Busan, the attractiveness as an asset is high because the parent company holds a low stake (44.17%) and it has strong local ties and market dominance in the Busan, Ulsan, and Gyeongnam (PK) region. Air Seoul is relatively smaller in size, and there is talk of possible integration or consolidation with the parent company.

However, apart from the flood of listings like these, the market situation not showing signs of recovery is pointed out as a limitation. Domestic passenger numbers from the 30th of last month, when the strengthened social distancing level 2 (so-called 'level 2.5') was applied, until the 13th, fell again to about 780,000, the lowest level since May.

Therefore, the industry views the possibility of a successful M&A as low. An industry insider said, "Even other airlines besides those currently listed are likely to be put up for sale," adding, "It seems there is still a long way to go before market restructuring."

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