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Eastar Jet, union in talks over job cuts on virus impact

All News 16:15 April 02, 2020

SEOUL, April 2 (Yonhap) -- Eastar Jet Co., a South Korean low-cost carrier, said Thursday it is in talks with its union over job cuts, raising worries over the possibility of industry-wide restructuring sparked by the spreading coronavirus outbreak.

Eastar Jet is in consultations with the 1,700-member strong union to return 10 out of 23 B737-800 aircraft to leasing companies and cut workforce by 40 percent through a voluntary retirement program, a company spokeswoman said over the phone.

The move comes after the state-run Korea Development Bank (KDB) rejected Eastar Jet's request for a fresh loan due to lack of collateral and the carrier's low credit ratings.

Eastar Jet held 7.7 billion won (US$6.2 million) in cash reserves at the end of last year and carries debts worth nearly 40 billion won.

This photo, taken on Dec. 19, 2019, shows planes operated by Jeju Air and Eastar Jet at Gimpo International Airport in western Seoul. (Yonhap)

Last month, the government announced it will inject 300 billion won into financially-troubled low-cost carriers through the KDB.

Eastar Jet shut down for from March 24 through April 25 as an increasing number of countries closed their borders or imposed stricter entry restrictions in their fight against COVID-19.

In South Korea, the virus has killed 169, more than half of them being patients aged 80 or older, and infected 9,976 others.

In a message to employees last month, Eastar Chief Executive Choi Jong-gu said the company will carry out drastic restructuring to survive the current crisis and the shutdown decision is an "inevitable option" the company can take to minimize the fallout from the virus outbreak.

Eastar Jet may end up in bankruptcy if Jeju Air Co.'s planned acquisition of the financially-troubled budget carrier takes time to obtain government approval and Jeju Air fails to inject cash into Eastar Jet in the right time, industry officials said.

Last month, the country's leading budget carrier Jeju Air signed a deal to acquire a 51.17 percent stake in Eastar Jet from Eastar Holdings for 54.5 billion won as part of its expansion strategy.

South Korea's anti-trust regulator has yet to approve the integration of the two budget carriers.
Other airlines have also been struggling with worsening business environments due to the spreading COVID-19 outbreak across the world.

Air Seoul Inc. has posted net losses since its establishment in 2015 and Air Busan Co. shifted to a net loss last year after posting net profit from 2010-2018. The two firms are budget carrier units of Asiana Airlines Inc., the country's second-biggest airline after Korean Air Lines Co.

South Korea has two full-service carriers -- Korean Air and Asiana -- and seven low-cost carriers -- Jeju Air, Jin Air, Air Busan, Air Seoul, Eastar Jet, T'way and Fly Gangwon.

Korean Air and Asiana have suspended most of their flights on international routes and all the budget carriers have grounded their fleets to minimize impact of the coronavirus outbreak.

Korean Air and Asiana also demanded an emergency financial package from the government. The budget carriers have also asked for the financial package and tax breaks as quickly as possible to stay afloat.

This photo taken on April 2, 2020, shows planes parked at the Incheon International Airport, west of Seoul, amid the spreading coronavirus outbreak. (Yonhap)

kyongae.choi@yna.co.kr
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