After months of negotiations, South Korea's top budget carrier Jeju Air has decided to scrap a deal agreed in principle to take over Eastar Jet after the industry was hit by air travel slump amid the COVID-19 outbreak.
It would have been the first-ever M&A between two local carriers.
Eum Ji-young is live outside the Eastar Jet head office in Seoul.
Jiyoung, by calling off the deal, Jeju Air has essentially pulled the plug on Eastar Jet and its 16-hundred employees. Why did the deal fall through?
Connyoung, I'm at Eastar Jet's headquarters in Gangseo-gu District, in southwestern Seoul, and there's hardly anyone in the office. South Korea's biggest low-cost carrier Jeju Air announced on Thursday that it has scrapped its plan to acquire Eastar Jet.
Jeju Air cited key violations of undisclosed preconditions, and said that uncertainties related to COVID-19 remain high. It notified Eastar Jet of its decision on Wednesday.
Jeju Air had signed a deal to acquire a 51-percent stake in Eastar Jet back in March.
It was to complete the deal by June 29th but it was delayed as Jeju Air demanded Eastar clear its debts of nearly 83-million U.S. dollars by July 15th.
Those debts include unpaid wages to employees, delayed payments to subcontractors and office operating expenses.
Eastar responded that it couldn't clear those debts because it has suspended flights since March and that debt payment was not part of the original share purchase agreement.
Eastar Jet says that by scrapping the deal, Jeju Air is violating the contract.
If Eastar is not going to be acquired at this point, it's expected that it's going to file for bankruptcy.
That means around 16-hundred workers could lose their jobs.
Yes Connyoung that's right. The airline industry is forecasting that Eastar will be liquidated.
Around 16-hundred workers are owed six months of unpaid wages adding up to more than twenty-one million U.S. dollars.
The head of Eastar Jet's pilot union said what is most important is to come up with a solution to save the workers from pain.
Take a listen.
"It is up to the government to rehabilitate Eastar Jet. The government has not supported the company even amid the crisis during the outbreak. Now that the acquisition has been scrapped, the government has to stop the mass unemployment of 1,600 workers."
South Korea's transport ministry has tried to mediate the matter, but Jeju Air has been cautious throughout, as acquiring Eastar could cause bigger financial problems.
The Transport Ministry’s head of aviation policy on Thursday urged Eastar Jet to come up with a plan B on how to run the company without Jeju Air.
That's all I have for now but I'll bring more updates in a later newscast back to you Connyoung.