Eastar Jet at a Crossroads... Will New Buyer Be Found Through Court Receivership?

Eastar Jet has notified 605 employees of layoffs, raising concerns about a mass unemployment crisis in the aviation industry. On the 9th, officials are preparing for an extraordinary shareholders' meeting at Eastar Jet headquarters in Gangseo-gu, Seoul. Photo by Hyunmin Kim kimhyun81@

[Asia Economy Reporter Yu Je-hoon] Eastar Jet, which was pushed to the brink of extinction after the failure of its merger and acquisition (M&A), has finally filed for corporate rehabilitation proceedings (court receivership). The plan is to find a new buyer under the court receivership system. Amid the ongoing impact of the novel coronavirus disease (COVID-19), the industry is paying close attention to whether Eastar Jet can find a new owner and achieve a "miraculous recovery."

According to the industry on the 16th, the Seoul Bankruptcy Court's Rehabilitation Division 1 issued a preservation order and a comprehensive injunction against Eastar Jet, which applied for rehabilitation proceedings the day before. This means that creditors are prohibited from seizing or selling Eastar Jet's assets until a decision on rehabilitation is made, effectively freezing the claims.

Eastar Jet, which had been experiencing financial difficulties, signed a memorandum of understanding for an M&A with Jeju Air at the end of 2019 and proceeded with related procedures. However, the deal ultimately fell through in July last year due to a combination of various unpaid debts amounting to about 240 billion KRW and the impact of COVID-19. As of May last year, Eastar Jet's assets and liabilities stood at approximately 55 billion KRW and 250 billion KRW respectively, placing the company in a state of capital erosion. After the M&A failure, Eastar Jet continued negotiations with new potential buyers following layoffs and restructuring. It is known that one construction company, one financial firm, and about two private equity funds (PEFs) have shown interest in acquiring Eastar Jet.

Initially, Eastar Jet considered selecting a preferred bidder before applying for court receivership. This was due to concerns that the court might reject the rehabilitation process and proceed with liquidation amid the ongoing COVID-19 impact. However, as negotiations with potential buyers stalled and pressure to repay debts intensified, the strategy was revised. Eastar Jet plans to select a buyer and secure investment once the rehabilitation process begins, aiming to reacquire its Air Operator Certificate (AOC) and gradually resume operations starting with domestic flights.

The court is expected to decide soon whether to approve the court receivership. The court has previously stated that it plans to consider ways to utilize the company's expertise and know-how through M&A, taking into account Eastar Jet's cost-cutting efforts such as workforce reduction and returning aircraft. Therefore, the likelihood of rejecting the rehabilitation process is considered low.

An industry insider said, "In reality, the only asset Eastar Jet has left is its aviation license," adding, "There are other potential assets on the market, and since it will take 2 to 3 years for the industry to recover after COVID-19, it is uncertain whether the future process will proceed smoothly."

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