Jeju Air buys controlling stake in Eastar

Jeju Air, a budget airline controlled by Aekyung Group, has agreed to buy a majority stake in Eastar Jet for about 69.5 billion won ($59.5 million).

The acquisition of the low-cost carrier comes just over a month after Jeju lost in its bid to gain control of Asiana Airlines.

AK Holdings said Wednesday that its airline subsidiary signed a preliminary deal to acquire a 51.17 percent stake in Eastar Jet.

The official sales purchase agreement is scheduled to be signed Dec. 31 after due diligence is conducted.

The takeover is intended to scale up the businesses, Jeju Air said.

“The combination of two carriers will benefit from the economies of scale, and we aim to boost market share based on the two companies’ strengths,” Jeju Air said in a statement.

With the planned deal, Jeju Air will become the largest low-cost carrier in Korea with a fleet of more than 40 aircraft.

The move also came as Eastar Jet, which is not listed, faces annual operating losses of tens of billion won.

The downturn is attributed to the reluctance of people to travel to Japan, once one of the most popular destinations, in the wake of Japan’s trade restriction against Korea.

The uncertain fate of Boeing’s 737 Max poses challenges to Jeju Air as well as Eastar.

Eastar has already taken delivery of some of the troubled aircraft, while Jeju Air has an outstanding order for 40 B737 Max 8 aircraft.

“We will maximize efficiency in operations and achieve a concrete position as the top low-cost carrier through the acquisition of Eastar Jet,” said Jeju Air CEO Lee Seok-joo in a statement.

Eastar Holdings will remain the second-largest shareholder.

“Eastar Holdings will work together with Jeju Air to overcome current challenges and foster development in the airline business,” said Lee Soo-ji, head of Eastar Holdings.

In its bid for Asiana Airlines, Aekyung lost out to a consortium led by HDC Hyundai Development and Mirae Asset Daewoo. The board of Kumho Industrial, which created the airline in 1988, decided against bids submitted by groups led by Aekyung and the Korea Corporate Governance Improvement fund, an activist investment fund and the second-largest shareholder of Korean Air.

Kumho Industrial put its 31.05 percent stake in Asiana up for sale under pressure from creditors.

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