South Korean credit card issuers have launched legal action to recoup about 10 billion won ($8.4 million) from cash-strapped Eastar Jet after the budget carrier’s takeover by Jeju Air collapsed, possibly affecting its rehabilitation plans. 

Seven card companies, including BC Card, have sought a court order for Eastar Jet to pay its debts, industry sources said on Monday (October 12). Many of the liabilities resulted from passenger refunds that the card companies made after the mass cancellation of flights due to the Covid-19 pandemic. 

Eastar Jet also has delayed payments for fuel and the use of airport facilities because of its liquidity problems. The airline had intended to pay the debts after Jeju Air’s takeover deal was completed, but has run out of options since the deal was called off.

Depending on how quickly the civil proceedings are resolved, Eastar Jet may have to reconsider the timing of its rehabilitation plan. The law states that any civil proceedings, seizure, collection or compulsory execution relating to debts must be halted if a debtor enters corporate rehabilitation procedures.

If Eastar Jet starts these procedures before securing an investor, it will be appraised on its liquidation value, which will reduce prospects of the airline proceeding with its business normalization plan. The debt-ridden firm continues to seek a new owner, which would be expected to initially invest through a shares purchase and then take over the firm once the rehabilitation procedures had been completed. 

“If there is a stronger possibility of compulsory execution, Eastar Jet may avoid such action by initiating the rehabilitation procedures first,” said an industry source. “However, doing so will make it more difficult for the airline to carry out its original business normalization plan, posing an even bigger obstacle to its sale process.” (Reporting by Ik-hwan Choi)