Budget carrier Eastar begins auction to find investor

Financially troubled budget carrier Eastar Jet said Monday it has begun an open auction to find an investor after selecting a preliminary preferred investor last week.

In the open bid, Eastar Jet plans to receive letters of intent from interested companies by June 14 and select a final investor afterward, Eastar Chief Executive Kim You-sang said over the phone.

On Friday, Eastar signed a contract with an unidentified local investor and obtained approval for the preliminary deal from the Seoul Bankruptcy Court.

The CEO said the company will proceed with the investor selection process in the form of a "stalking-horse" bid.

In the stalking-horse bid, Eastar selects a preliminary preferred bidder for the budget carrier ahead of an auction, in which other bidders submit their prices. The stalking horse sets the low-end bidding price so that other bidders cannot underbid the price.

The CEO has said several companies have shown an interest in acquiring Eastar after the bankruptcy court approved the corporate rehabilitation process for the carrier in February.

Eastar is required to submit its debt-repayment and other rehabilitation programs to the court by May 20 and aims to resume flights on domestic routes as early as June.

But the company plans to ask the court to extend the deadline for the rehabilitation programs, as the open auction has just begun and a final bidder is expected to be selected after June 14.

It also plans to receive an air operator certificate (AOC) from the transport ministry once the court accepts its own rehabilitation programs.

Eastar has suspended most of its flights on domestic and international routes since March last year due to the coronavirus' impact on the airline industry, and its AOC became ineffective in May.

Eastar has had difficulties in finding a strategic investor since July of last year, when Jeju Air Co. scrapped its plan to acquire the carrier amid the prolonged COVID-19 pandemic.

In January, Eastar Jet applied for court receivership to find a way to continue its air transport business through M&A procedures.

The court later ordered preservation measures and comprehensive prohibition to prevent creditors from seizing or selling company assets and to freeze all bonds before the carrier's rehabilitation proceedings.

Deloitte Anjin LLC advises the deal as lead manager. (Yonhap)