SEOUL, July 2 (Yonhap) -- Jeju Air Co.'s planned takeover of smaller budget carrier Eastar Jet Co. appears to be on the brink of falling through as Jeju Air asked Eastar Jet to settle all of its debts by mid-July to proceed with the deal.
In a letter sent to Eastar on Wednesday, Jeju Air reportedly called on Eastar to pay off all of its debts estimated at up to 100 billion won (US$83 million), including unpaid wages to its employees, delayed payments to subcontractors and office operating expenses, within the next 10 days, a demand that cannot be met by Eastar Jet.
In March, Jeju Air signed a deal to acquire a controlling 51.17 percent stake in Eastar Jet from Eastar Holdings for 54.5 billion won as part of its expansion strategy despite the new coronavirus' growing impact on the airline industry.
"We sent a letter to Eastar yesterday to demand overall debt payments in the following 10 working days, but we cannot confirm the value of the unpaid debts," a Jeju Air spokesman said over the phone.
Eastar has yet to resolve its debt payment guarantee for Thai Eastar Jet, a joint venture set up between its parent firm Eastar Holdings Co. and a Thai company, he said.
But Eastar has said the debt payment guarantee for the joint venture "does not have problems" and all the unpaid wages and expenses are mainly due to COVID-19-induced liquidity problems.
Eastar officials were not immediately available for comment.
Jeju Air's 10-day ultimatum comes days after Eastar pressed Jeju Air to push ahead with its acquisition process.
On Monday, Eastar Jet Chief Executive Choi Jong-gu said the airline's founder Rep. Lee Sang-jik of the ruling Democratic Party and his family will put their entire 38.6 percent stake in the hands of the budget carrier in a move to bring Jeju's stalled takeover plan back on track.
Rep. Lee's son and daughter collectively own the 39.6 percent stake in Eastar Jet through Eastar Holdings. The value of their Eastar stake reaches 41 billion won (US$34 million).
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.
Behind the delay in the acquisition process were deep-running differences between the two sides over acquisition terms.
Eastar Jet said it suspended all of its flights and sent all of its 1,700 employees on "paid leave" in late March as Jeju Air said it will guarantee wages for them after the signing the same month. But Jeju Air changed its position in May with the worsening COVID-19 pandemic, according to Eastar Jet.
But Jeju Air balked at Eastar Jet's argument, claiming that the Eastar's management made the decision to halt all flights and sent its employees home without paying wages.
To wrap up the deal, Jeju Air has to obtain approval from Vietnam and Thailand, which are still reviewing the proposed takeover.
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 low-cost carriers -- Jeju Air, Jin Air Co., Air Busan Co., Air Seoul Inc., Eastar Jet, T'way Air Co. and Fly Gangwon.
AK Holdings, the holding firm of South Korean retail conglomerate Aekyung Group, holds a 56.94 percent stake in Jeju Air.
On Thursday, Jeju Air jumped 6.9 percent to 16,950 won, and AK Holdings climbed 4.4 percent to 19,100 won, outperforming the broader KOSPI's 1.4 percent gain.
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