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(LEAD) Eastar to cut half of employees for new deal

All News 21:21 September 07, 2020

(ATTN: UPDATES with more details in paras 2, 4-5, 9-10)

SEOUL, Sept. 7 (Yonhap) -- Embattled Eastar Jet Co. said Monday it will reduce its workforce by more than half as part of efforts to find a new investor after Jeju Air Co. scrapped its plan to acquire the smaller budget carrier amid the coronavirus pandemic.

Eastar plans to lay off 605 of its 1,216 employees on Oct. 14 before it begins the process of finding a new investor, Eastar Senior Vice President Kim You-sang said over the phone.

"Our lead managers and two private equity funds (that have an interest in investing in Eastar) want the company to reduce our fleet and workforce, among other things," he said.

The company plans to maintain 590 employees, including cabin crew, that is the bare minimum to fly six planes, the executive said. The size of the remaining workforce also is in line with the company's air operator certificate. Eastar said while pilots are being let go, none of its maintenance workers are to be laid off.

Eastar currently has 18 planes, including two 737 MAX aircraft, and had 1,680 employees as of March.

In this photo, taken on Sept. 3, 2020, a group of civic activists call on Eastar Jet to nix its plan to reduce its workforce near the National Assembly in Seoul following Jeju Air's recent decision to scrap its planned takeover of Eastar. (Yonhap)

Last month, Eastar selected Deloitte Anjin LLC, Yulchon LLC and Heungkuk Securities Co. as lead managers to resume a bid to sell a controlling stake of 51.17 percent.

The company is looking for a strategic investor, or a company, that has an interest in the majority stake in Eastar, the executive said.

"Ten companies, including PEFs, have expressed their intention to acquire Eastar. We are targeting to select a preferred negotiating partner by the end of this month," he said.

Eastar, which has suspended all flights since March, faces bankruptcy after Jeju Air scrapped the deal in late July due to the COVID-19 pandemic's growing impact on the airline industry. It acknowledged that it does not presently have the means to pay it employees.

Without going into details, Eastar said it aims to pick a preferred bidder to take over the company in the next few weeks and for a merger and acquisition to be pushed forward in October.

In March, Jeju Air signed a deal to acquire the controlling stake in Eastar Jet from Eastar Holdings for 54.5 billion won (US$45.53 million) as part of its expansion strategy despite the pandemic.

On July 1, Jeju Air sent an ultimatum demanding Eastar Jet pay off all of its debts, estimated at up to 170 billion won, including unpaid wages to its employees, delayed payments to subcontractors and office operating expenses, by July 15.

But Eastar failed to meet the demands. The company said the debt payment was not part of the deal and that it was not Eastar's duty to do so but Jeju Air's.

On July 23, the state-run Korea Development Bank (KDB) and the Export-Import Bank of Korea said they will withdraw their plan to extend loans worth 170 billion won to Jeju Air following the deal's collapse.

This file photo, taken July 1, 2020, shows Jeju Air and Eastar Jet planes at Incheon International Airport, west of Seoul. (Yonhap)


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