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Business deals

South Korean budget airline deal scrapped amid pandemic

Jeju Air cites uncertainty in canceling purchase of troubled Eastar

Eastar Jet, which employs about 1,600 people, has been ordered by the transport ministry to minimize job losses. (Photo from airline's Facebook account)

SEOUL -- Jeju Air, South Korea's largest low-cost carrier, will drop its planned acquisition of foundering compatriot Eastar Jet as the coronavirus pandemic wipes out demand for air travel.

Jeju Air faces too much uncertainty surrounding the deal to proceed, the airline said Thursday in announcing the decision.

The agreement reached in March stipulated that Eastar resolve concerns including roughly $20 million in unpaid wages, among other debts. But the carrier, which shut down operations in March due to the pandemic, was unable to come up with the money. Jeju Air issued an ultimatum July 1 threatening to call off the acquisition if Eastar did not pay its debts by July 15.

Eastar asserts that Jeju Air has no right to break off the deal and that the larger airline bears legal responsibility for violating the agreement.

Eastar, which employs about 1,600 people, was ordered Thursday by the transport ministry to minimize job losses. But with the pandemic still spreading, air travel looks unlikely to recover anytime soon.

South Korea's aviation industry is struggling due to factors beyond the coronavirus, including an economic slump and a drop in traffic to and from Japan amid tensions between Seoul and Tokyo. All of the country's carriers -- including the two largest, Korean Air Lines and Asiana Airlines -- are reporting operating losses.

The low end of the market is crowded, with six budget carriers that fly international routes. The pandemic has deepened the problems and spurred a shakeout. The planned acquisition of Asiana by construction company HDC Hyundai Development was postponed indefinitely in April.

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