Sung Jung’s takeover of Eastar facing turbulence
Sung Jung, the final bidder to acquire cash-strapped Eastar Jet, is facing turbulence to complete the takeover and achieve management recovery of the budget carrier, which was on the verge of bankruptcy amid the prolonged COVID-19 pandemic.
On Tuesday, the Seoul Bankruptcy Court accepted Eastar Jet’s plan to sign a contract with property developer Sung Jung.
The contract will be signed Thursday, with the cost of acquisition estimated at about 110 billion won ($97 million).
There are a pile of tasks that Sung Jung needs to work on, including resolving the budget carrier’s huge debt, estimated at about 250 billion won, the company’s delayed payments for fuel and the use of airport facilities, as well as unpaid wages and severance pay for its employees.
Additional investment will also be necessary to normalize the carrier’s air transport business, as it needs to obtain an air operator certificate (AOC) again from the Ministry of Land, Infrastructure and Transport,
lease planes and train pilots. These activities will require about 150 billion won, according to aviation industry officials.
The carrier has suspended most of its flights on domestic and international routes since March of last year after the outbreak of the pandemic, with its AOC becoming ineffective in May of that year.
More bad news is that it will take considerable time for the carrier to turn a profit amid the ongoing global public health crisis and intensifying competition among local low-cost carriers.
In July of last year, Jeju Air, the country’s biggest budget carrier by sales, abandoned its acquisition of Eastar Jet, due mainly to the latter’s huge debts amid growing uncertainties in the aviation industry, caused by the pandemic.
In January, Eastar Jet applied for court receivership to find a way to continue its business through M&A procedures, and the court approved the corporate rehabilitation process in the following month.
Sung Jung also needs to cope with the labor-management conflict at Eastar Jet, which has been put into an extreme state after the airline laid off 605 employees, following the collapse of Jeju Air’s planned takeover. The union has called on the company to restore their jobs.
“There are a lot of tasks that should be resolved even after Sung Jung completes the takeover process,” an aviation industry official said. “The biggest challenge will be to find ways to secure sufficient funds in the process of normalizing the management of Eastar Jet.”
With regards to the labor-management conflict, the official said that the union seems to acknowledge the need for a prompt management recovery to receive unpaid wages at the earliest possible date. Thus, the conflict could be resolved soon in this regard.
For his part, Sung Jung Chairman Hyoung Nam-sun presented a plan for how to overcome the crisis, vowing to reinstate laid-off employees and operate a fleet of 20 airplanes after the takeover is completed.
He stressed that Eastar Jet’s business will normalize in five years so long as no new unfavorable factors occur, such as another pandemic. Sung Jung, headquartered in Buyeo, South Chungcheong Province, manages golf courses and rents out and develops properties.
Last year, the firm posted 5.9 billion won in sales and 550 million won in operating profit. Meanwhile, the court selected a consortium led by underwear company Ssangbangwool as a secondary bidder for the troubled carrier.