FTC gives nod to Jeju Air taking over Eastar Jet

The Fair Trade Commission (FTC) approved Jeju Air’s acquisition of fellow budget airline Eastar Jet as the aviation industry struggles through the turbulence of the coronavirus outbreak.

The antitrust regulator Thursday announced it will allow Jeju Air, Korea’s largest low-cost carrier, to acquire a 51.17 percent stake in the heavily-indebted Eastar Jet, which shut down all its flights in March.

The FTC said it accelerated its decision because of the acute difficulties of the aviation industry as a result of the pandemic.

Jeju Air applied for approval on March 13. It usually takes six months to a year to get FTC approval for an acquisition that could diminish competition in the market.

The FTC said it approved the deal by applying an exceptional clause of the antitrust law because it determined Eastar Jet’s business was not recoverable.

In terms of domestic routes, including full-service carriers, Jeju Air accounts for 15 percent of the market while Eastar Jet accounts for around 10 percent.

“Although the deal required in-depth evaluation, the FTC swiftly reached its conclusion because the situation [with Eastar Jet] is critical,” said Lee Sung-kyu from the FTC.

Eastar Jet reported a 79.3 billion won ($70.8 million) operating loss last year.

The FTC determined that Eastar Jet won’t be able to pay 115.2 billion won worth of debt, which includes aircraft lease fees and employee wages. As of last year, the value of the airline’s total tangible assets was 45 billion won.

Earlier this month, Eastar Jet decided to let go around 350 of its 1,600 employees.

The Eastar Jet acquisition will help Jeju Air achieve economies of scale on several levels - from aircraft lease fees to oil prices. They both rent Boeing 737s.

“Once we acquire Eastar Jet, Jeju Air will account for a higher market share than Asiana Airlines in terms of domestic flights,” said Park Jung-ju, a spokesperson for Jeju Air. “Our market share for international flights will reach a similar level to that of Asiana.”

“Jeju Air’s goal with the Eastar Jet acquisition is to secure more international routes because there’s a limit to earning profit from domestic routes,” said Prof. Hur Hee-young, who teaches business at Korea Aerospace University.

Eastar Jet flies to around 30 international cities, including Vladivostok in Russia and Kota Kinabalu in Malaysia.

But whether Jeju Air will be able to entirely absorb Eastar Jet routes is uncertain, according to Park.

To complete the deal, Jeju Air needs to gain approval from Thailand and Vietnam because of Jeju Air’s and Eastar Jet’s routes to those countries, but neither of them has given the nod yet.

Jeju Air and Eastar Jet are scheduled to close the sale on April 29.

BY JIN MIN-JI [jin.minji@joongang.co.kr]