South Korea's government has given the go-ahead to a merger between two of the country's budget airlines – Jeju Air and Eastar Jet.
The country's Fair Trade Commission granted the approval for Jeju Air to assume the management of the struggling competitor Eastar Jet. Per the deal first signed in March, Jeju Air acquired a 51.17% stake in the company from Eastar's parent company Eastar Holdings worth around KRW 54.5 billion (USD $45 million).
“The Fair Trade Commission conducted the review as promptly as possible, considering the circumstances of the airline industry suffering from the aftermath of the pandemic,” the FTC said. The South Korean FTC found that the approval was given as an exemption from anti-trust laws citing Eastar was an “unrecoverable company.”
Facing financial struggles last year, Eastar Jet has seen instances of staff not being paid during the second half of 2019, and weakened travel demand to/from Japan due to trade tensions between the two countries – one of its major markets. It was also heavily affected by the groundings of the Boeing 737 MAX, which Eastar Jet had 2 of the jets delivered.
Eastar Jet's reported losses since 2013 has been estimated to be around KRW 62.3 billion (USD $51.3 million) last year.
Amid the ongoing COVID-19 pandemic, Eastar Jet's fleet have been grounded since March 25.
With no other competitor or outside company seeking the stakes in the airline, Jeju Air – the largest budget airline in South Korea – is looking to use the merger strengthen its share of the market as it competes with five other low cost carriers based in South Korea - Jin Air, Air Busan, Air Seoul, T'way and Fly Gangwon.
The market is expecting more competition among the South Korean budget carriers as new entrants Air Premia and Aero K are expected to launch within the year or the next.
The merger will involve the combined fleet of over 120 aircraft – around 69 Boeing 737 aircraft. Both carriers primarily operate Boeing 737-800 jets while Eastar also has Boeing 737-900ERs and 2 Boeing 737 MAX 8s which are grounded.
Both airlines have ordered the now grounded 737 MAX jets. Jeju Air has 40 along with Eastar's 4 on order.