PE firm VIG Partners takes over Korean low-cost carrier Eastar

South Korean private equity firm VIG Partners has acquired a 100% stake in low-cost carrier (LCC) Eastar Jet Co., the asset manager said on Jan. 6.  

The PE firm has signed a deal to purchase the stake for 35 billion won ($27.5 million) via its fourth fund from real estate developer Sung Jung and its golf course operation affiliate Baekje Country Club. The two previous shareholders bought the budget carrier for about 120 billion won in 2021.

In additin, VIG Partners will raise about 110 billion won through a rights offering by the end of this month to settle part of the LCC’s debts and introduce new aircraft, including Boeing 737-8s.

After the transaction, the budget carrier will accelerate the process of reissuing an Air Operator Certificate (AOC) from the Ministry of Land, Infrastructure and Transport. An AOC authorizes the commercial operation of aircraft services after a thorough investigation of an airline company’s personnel, facilities, insurance, finance and others. 

VIG Partners aims to boost synergy between the LCC and local travel booking platform My Real Trip Co. in the post-pandemic era. In June 2022, the PE firm's private credit unit VIG Alternative Credit invested 52 billion won in My Real Trip's bond with warrants (BWs), which gives the investor the right to buy a specified number of shares at a specified price for a certain period.

Founded in 2007, Eastar Jet started operating between Korea's Gimpo airport and Jeju Island in January 2009 and launched international flight services in December of that year. As its cumulative passenger count exceeded 1 million in 2014, the company emerged as a key LCC in Korea.

The carrier suspended all flight operations in 2020, however, due to deteriorating financial conditions.

Jeju Air Co., another Korean LCC, had signed an agreement to take over Eastar Jet in 2020 but scrapped the plan the same year, citing "financial uncertainties."

Hit by COVID-19, Eastar Jet was placed under court receivership in February 2021 and graduated from the court-led debt-rescheduling program in March 2022. The carrier applied for reissuance of its AOC last year to resume flight service but still hasn’t received the Korean government's approval.

Eastar Jet was in complete capital erosion as of end-2021, according to financial statements filed with Korea’s Financial Supervisory Service last May. In the disclosure, the carrier's retained earnings and total equity in 2021 came in at negative 485.1 billion won and negative 40.2 billion won, respectively. 

Write to Jun-Ho Cha at chacha@hankyung.com
Jihyun Kim edited this article.