Jeju Air’s much-delayed acquisition of fellow low-cost carrier Eastar Jet is in jeopardy due to questions over shareholdings, unpaid wages for workers and other issues, and there is speculation that negotiations may not resume until emotional conflicts have been resolved.
According to a source familiar with the situation, Eastar Jet did not consult with Jeju Air before calling a press conference to outline family shareholding structures, and its explanation did not provide full clarity.
Eastar Jet founder Lee Sang-jik, who is also a member of the ruling Democratic Party of Korea, told the press conference that the controlling family will contribute its entire 39.6% stake as part of the deal, but got no response from Jeju Air. Eastar Jet is owned by Aekyung Group.
Eastar Jet did not discuss the wage issues during the press conference, saying only that it intends to inject proceeds from the sale of shares into the company and leave it to the buyer to decide whether to use this money to make payments to workers or repay debts. This was also reportedly not welcomed by Jeju Air.
Market insiders believe the deal may fall apart if the two sides fail to resume negotiations. It will be up to JeJu Air whether to reopen talks, as the seller has already decided to give up its stock ownership.
Analysts see limited benefit from the acquisition for Jeju Air, other than the opportunity to retain some traffic rights and open an additional passenger slot at airports. The deal may not go ahead if it appears Jeju Air will shoulder a financial burden from Eastar Jet. Jeju Air made a downpayment of only 5.4 billion won after signing a stock purchase agreement, so its exposure is limited.
Industry sources say the worst case scenario is that the deal may be canceled, in which case Eastar Jet may be placed under court receivership. This is not unprecedented: Hansung Airlines was under court receivership until April 2010, but recovered with investment from a local venture capital and renamed itself T’way Air.
“If the deal ends up being canceled, the court receivership will be Eastar Jet’s only option,” said one source. “Under the current situation it is not certain whether the airline will be able to find a new owner, even under the court receivership.” (Reporting by Ik-hwan Choi)