South Korea's largest budget carrier Jeju Air is backing away from its initial plan to acquire fellow local competitor Eastar Jet after months of negotiations, and issuing a warning earlier in the month it would do so.

“Despite the government’s willingness to support and mediation efforts, the level of uncertainty facing Jeju Air was too high to move forward with the acquisition,” the airline said in a statement.

In response, Eastar Jet accused Jeju Air of “breaching its stock purchase agreement.”

“We urge Jeju Air to implement the stock purchase agreement, and the responsibility lies with Jeju Air in the event of breach or nonfulfillment of agreement,” Eastar Jet said in a statement to reporters. The financially struggling airline has around 1,500 employees.

The latest development is a blow to Eastar Jet, which has faced financial difficulties and challenges from late 2019. It was affected by trade tensions between Japan and South Korea which was a major market for the budget carrier. Also, Eastar Jet was the first operator of the Boeing 737 MAX in South Korea which are currently grounded globally.

This year, the airline along with its counterparts in South Korea have been impacted by the drastic drop in air travel demand amid the COVID-19 pandemic.

In March, Jeju Air announced it would acquire a majority 51% stake in Eastar Jet in a deal worth around KRW 54 billion (~USD $45 million). However, as relations between both parties have deteriorated in the following months.

The dispute between the two Korean budget carriers has come about from questions as to the degree of intervention of Jeju Air in the affairs of Eastar Jet including corporate restructuring and unpaid wages. Jeju Air in return has accused Eastar Jet of not clearing its financial obligations.

In early July, Jeju Air issued a warning to Eastar Jet that it would back away from the deal if the other airline failed to meet obligations for the acquisition to go forward. It gave a deadline of July 15 for the conditions to be met.


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