Deloitte Anjin and Heungkuk Securities have started their search for a new buyer for Eastar Jet Co Ltd , as the debt-ridden budget carrier also undertakes cost-cutting measures in the hope of raising enough money to pay off creditors. 

The sale managers plan to approach local strategic investors and private equity firms even before they begin distributing teaser letters for a deal, industry sources said on Wednesday (August 26). Eastar Jet has been in talks with two potential investors, but the negotiations reportedly have reached a deadlock over the large valuation gap.

A wide range of options is being explored for the airline to meet its debt obligations, after Jeju Air Co Ltd’s deal to take over Eastar Jet collapsed last month. The debt repayment level is likely to be the key factor in Eastar Jet receiving approval from creditors to proceed with its rehabilitation plan. 

In order to emerge from bankruptcy, the carrier needs to secure sufficient proceeds to repay creditors. Eastar Jet hopes to sign an agreement with a potential buyer and then submit a rehabilitation plan approved by creditors to the court.

However, it may struggle to find a buyer if the valuation gap cannot be narrowed. 

The liquidation value of Eastar Jet is low as there are few assets it can sell. The airline would only be assured of getting  approval from creditors if the acquisition price was above a level where the debts could be serviced. Market insiders said the sale price has to be at least in the mid-100 billion won ($84 million) range for Eastar Jet to avoid bankruptcy, as its debts are estimated at over 200 billion won.

Eastar Jet reportedly plans to resume flights before Chuseok ― Korean Thanksgiving Day ― on October 1, once its air operator’s certificate has been reissued. The carrier is also looking at an investment structure in which lead financial investors might form a consortium with strategic investors to push up the sale price. A higher sale price means a better repayment rate.

In the meantime Eastar Jet is cutting costs wherever it can to secure more cash and ease repayment pressures. The workforce is being trimmed, with the intention of reducing about 10 billion won of fixed costs every month, and aircraft leasing fees are being lowered. (Reporting by Ik-hwan Choi)