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Eastar Jet founding family to donate stocks to revive Jeju Air's takeover

All News 14:53 June 29, 2020

By Choi Kyong-ae

SEOUL, June 29 (Yonhap) -- Eastar Jet Co. said Monday its founding family members will donate their stake in Eastar in a move to bring Jeju Air Co.'s planned takeover of the smaller budget carrier back on track amid concerns over potential rupture.

Rep. Lee Sang-jik of the ruling Democratic Party, Eastar Jet's founder, and his family will donate their entire 39.6 percent stake in the budget carrier. The value of their stake in Eastar reaches 41 billion won (US$34 million) but other details about the donation plan were not immediately available.

"We call on Jeju Air to clarify whether it has a real intention to acquire Eastar Jet within a day and we also ask the government to extend a financial helping hand to the country's virus-hit low-cost carriers," Eastar Chief Executive Choi Jong-gu said.

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

In March, Jeju Air signed a deal to acquire a controlling 51.17 percent stake in Eastar Jet from its parent, Eastar Holdings Inc., for 54.5 billion won (US$45 million) as part of its expansion strategy despite COVID-19's growing impact on the airline industry.

Jeju Air was expected to complete the deal by June 29 because the country's biggest budget carrier said in April it will issue 10 billion won worth of convertible bonds on June 30, one of the prerequisites for the takeover. Eastar Holdings was planning to purchase the bonds, which can be converted into Jeju Air equities.

But the bond issuance has been delayed, with the date to be set later according to an agreement from both sides.

Eastar Jet suspended all of its flights in late March, and its 1,700 employees went on paid leave as Jeju Air said it will guarantee wages for them after the signing in March, but Jeju Air changed its position in May with the worsening COVID-19 pandemic, Eastar Jet said.

Eastar said unpaid wages for its workers reach about 24 billion won.

But Jeju Air balked at Eastar's argument, claiming that the Eastar's management made the decision to halt all flights and sent its employees home without paying wages.

Eastar began to delay making payments to its partner companies at airports and oil suppliers in December. The subcontractors and refiners said that they won't work with Eastar any longer in late March, Jeju Air said.

The tit-for-tat between the two low-cost carriers has brought Jeju Air's acquisition of Eastar Jet to a halt.

To wrap up the deal, Jeju Air has to obtain approval from Vietnam and Thailand, which are still reviewing the proposed takeover.

Asked about a possible collapse of the deal, Jeju Air reiterated that it will proceed with the deal.

Jeju Air has said the acquisition will help it gain a bigger market share and strengthen the company's competitiveness in global markets.

South Korea has two full-service carriers -- Korean Air Lines Co. and Asiana Airlines -- and seven LCCs -- Jeju Air, Jin Air, Air Busan Co., Air Seoul Inc., Eastar Jet, T'way and Fly Gangwon.

Two more LCCs -- Air Premia Co. and Aero K Airlines Co. -- are expected to join the market next year.

AK Holdings, the holding firm of South Korean retail conglomerate Aekyung Group, holds a 56.94 percent stake in Jeju Air.

kyongae.choi@yna.co.kr
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