Scrapped takeover endangers Eastar’s future

Last December, the two parties reached an agreement. Jeju Air signed a preliminary agreement to acquire 51 percent of its competitor Eastar Jet. The purchase price was set at 69.55 billion won or the equivalent of 51 million euros. When the corona crisis became more and more severe, the buyer negotiated a reduction of the price. It was agreed to 54.5 billion won – around 20 percent less than originally negotiated.

But now Jeju Air does not want to buy Eastar at all. «It is sad that we have decided to abandon the deal despite the government’s intention to support it,» said the largest South Korean low-cost airline. The uncertainties surrounding the pandemic are too large, says Jeju Air.

High debt as a stumbling block

Eastar is not amused. «We urge Jeju Air to go through with the takeover and we will take all possible measures to make Jeju take responsibility for the failure,» CEO Kim You-sang commented to Yonhap news agency. The Ministry of Transportation, on the other hand, is demanding a Plan B from Eastar’s management.

The smaller low-cost airline is doing badly in the current crisis. «It seems very uncertain that Eastar can normalize operations at the moment», a government representative said according to Yonhap. The airline would be helped if it presented an idea of how to proceed. However, it is uncertain whether Eastar can find a new investor. «Eastar’s capital erosion and debt growth seem to be a stumbling block,” an analyst told the agency.

Eastar was founded 13 years ago

Eastar is the fourth largest low-cost airline in the highly competitive South Korean market, after Jeju Air, Jin Air and T.Way, with a market share of around ten percent. The airline was founded in 2007 and today owns a fleet of 18 Boeing 737, carrying 3.4 million passengers in 2019.