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Questions grow about Jeju Air's bid to take over Eastar Jet

(Yonhap)
(Yonhap)

Jeju Air Co., South Korea's leading low-cost carrier, has been at odds with Eastar Jet Co. over Eastar's demand for the shouldering of some of its overdue wage payments, industry officials said Monday, a move that could act as a possible deal breaker.

The dispute comes seven days before the two sides are scheduled to close their deal.

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 ($45 million).

Eastar Jet has recently proposed that its employees forgo their wages for three months, while Eastar Holdings pay back some of Eastar Jet's overdue payments and Jeju Air shoulder the remainder.

Jeju Air has said Eastar Jet's management and its majority shareholders should address the overdue payments worth about 25 billion won.

But Eastar Jet has claimed that Jeju Air should resolve the issue after taking over Eastar Jet. Under the deal signed in March, Jeju Air reportedly said it would not take issue with additional damages over the coronavirus outbreak, but Jeju Air made it clear that the agreement did not include its shouldering of Eastar Jet's overdue payments.

The dispute over the overdue payments has raised the prospect that the two sides are not likely to close their deal next Monday as scheduled.

The two sides can extend the closing date by three months, but the problem is that the delay would raise Eastar Jet's overdue payments by 5 billion won per month.

Eastar Jet has shut down since March 24 as an increasing number of countries closed their borders or imposed stricter entry restrictions in their fight against COVID-19.

In March, Eastar CEO Choi Jong-gu said the company will carry out drastic restructuring to survive the current crisis and the shutdown decision is an "inevitable option" the company can take to minimize the fallout from the virus outbreak.

Eastar Jet held 7.7 billion won in cash reserves at the end of last year and carries debts worth nearly 40 billion won. (Yonhap)
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