Jeju Air buys Eastar Jet as discount carriers face big challenges

Jeju Air agreed to buy a majority stake of Eastar Jet for 54.5 billion won ($45.7 million) on Monday.

The transaction comes as local carriers struggle for survival and as the pressure for consolidation builds.

The price for the 51.17 percent stake is down from the 69.5 billion won price disclosed in a December filing.

All carriers in Korea have been hit hard by the coronavirus outbreak, with some being pushed to the brink as routes are cut and passenger totals plummet.

“Jeju Air and Eastar Jet made a compromise in the price to contribute to the growth for the airline market that is affected by the Covid-19,” said Lee Seok-joo, CEO of Jeju Air.

The budget airlines have been particularly hard hit, as the carriers have been focused on their region and were especially exposed to China. Six local budget airlines - Jeju Air, Jin Air, Air Busan, Air Seoul, Eastar Jet and T’way Air - said in a joint statement Friday that they are in desperate need of long-term, unsecured loans with low interest rates.

Jeju Air’s CEO expressed hope since the deal could help consolidate Korea’s airline sector where supply far exceeds demand.

“We acknowledge that there are concerns about the acquisition of Eastar Jet,” Lee said in a statement.

“But we thought what is best for us is to preemptively move in the face of an anticipated industrial restructuring due to excessive supply,” he said.

With the planned deal, which was approved by Jeju Air’s board, Jeju Air will become the largest low-cost carrier in Korea with a fleet of more than 40 aircraft.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]