Wikipedia

Proposed merger of Korean Air and Asiana Airlines

The proposed merger of Korean Air and Asiana Airlines is a policy announced by the Government of South Korea in November 2020, which would result in Korean Air absorbing Asiana Airlines creating a dominant carrier in South Korea.[1]

Korean Air (left) and Asiana Airlines (right) aircraft

The merger is now viewed as increasingly unlikely given the regulatory headwinds.[2]

For the merger to proceed, antitrust approval is necessary from competition authorities in key markets for the carriers. Out of the six essential markets, approval has been granted in all except one. As of February 2024, authorities in one essential market, the United States, have yet to approve the merger.[3]

In February 2023, it was confirmed that the merger would not proceed without approval from European Union and United States authorities. At the time, the Korean government did not view approval in the EU and US as likely. Backup plans such as an equity investment from foreign backers (with the UAE-based Mubadala Investment Company suggested) into Asiana to help it remain viable are being explored.[4]

In May 2023, it was reported that the United States Department of Justice is considering filing suit to block the merger as anticompetitive.[5]

In August 2023, the Korea Economic Daily reported that the Korean Development Bank was seeking a plan B in preparation for the proposed merger's collapse.[6] This was due to a rising belief that American and European authorities would block the consolidation. On September 27, 2023, Yonhap reported that Korean Air had submitted an amended application to the European Commission, proposing divestment of Asiana's cargo division and giving up slots at some EU airports, including Barcelona, Rome, Paris, and Frankfurt to satisfy competition concerns.[7][8]

Background

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On November 16, 2020, South Korea's Ministry of Land, Infrastructure and Transport announced Korean Air's proposed acquisition the Asiana Airlines.[9] The merger plan was approved by Korean Air's board on the same date.[10][11]

Korea Development Bank, a state-owned bank, agreed to provide 800 billion won (655.73 million USD) to Hanjin Group to help finance the merger between the airlines.[1]

Korean Air is currently a member of SkyTeam while Asiana is a Star Alliance member. If the merger is approved and completed, the combined airline will become a member of SkyTeam.[12] If the merger proceeds, South Korea's Ministry of Land, Infrastructure and Transport intends to integrate the carriers' low-cost carrier subsidiaries (Air Busan, Air Seoul, and Jin Air) into a combined low-cost carrier which will focus on regional airports in Korea.[13]

Specifics of the merger if approved would include the following:[14][15]

  • Korean Air would merge with Asiana Airlines creating a combined dominant airline in South Korea with Asiana Airlines dissolved.[16]
  • Jin Air, Korean Air's low-cost subsidiary, and Asiana's low-cost subsidiaries, Air Busan and Air Seoul, would be integrated into a separate combined low-cost carrier

Korean Air Chairman/CEO Walter Cho and President Woo Kee-hong confirmed that the company plans to fold Asiana Club into Korean Air's SKYPASS at a later date.[17][16]

In March 2021, Korean Air announced that its merger with Asiana Airlines would be delayed pending approval from relevant competition authorities. For the time being, Asiana Airlines will be operated as a subsidiary with its operations, IT, and other systems run by Korean Air until 2024.[18][19]

On June 30, 2021, it was reported that the post-merger plans between the two airlines were finalized and approved by the Korea Development Bank pending regulatory approval.[20][21]

Approval status

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For the merger to proceed, the impact on competition must be evaluated and approved by competition authorities in six key markets for the carriers. These markets were deemed "essential" requiring approval for the merger to be viable.

The consolidation has been denied approval by the Department of Justice in the United States, an essential market for the carrier, pending submission and review of further remedies from the carrier.[22] The merger has been approved by South Korea's competition authority as well as China, Japan, the European Union, and the United Kingdom.

In May 2024, Korean Air President Woo Kee-hong anticipated on the U.S. Department of Justice's approval, followed by a spokesperson's remarks, stating that "the screening will proceed in the affirmative."[23]

Country Status Notes
China Approved Approved by Ministry of Commerce on December 26, 2022.[24]
European Union Approved Formal objection filed by the European Commission to proposed merger.[25]
Amend application submitted on November 2, 2023 and received on November 3.[26]
Conditionally approved by the European Commission on February 13, 2024.[27]
Japan Approved Approved by Fair Trade Commission on January 31, 2024.[28][29]
South Korea Approved Approved by Fair Trade Commission in conditional approval on December 26, 2023.[30]
United Kingdom Approved Approved by Competition and Markets Authority on May 1, 2023.[31][32]
United States Blocked Blocked by Department of Justice for monopoly concerns May 22, 2023.[33]

China

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On December 26, 2022, the Ministry of Commerce of China announced its approval of Korean Air’s merger with Asiana Airlines.[34]

European Union

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On March 17, 2023, the European Commission (EC) released the results of an in-depth investigation concluding that the merger would restrict competition with a concentration of market power between Europe and Korea.[35] Specifically, the Commission cited reduced competition on passenger routes between South Korea and France, Germany, Italy, and Spain and reduced competition for air cargo between all of Europe and South Korea.[36] The Commission suspended its investigation into the merger in June 2023 due to the companies' failure to provide proposed corrective remedies before the Commission's deadline.[36]

In October 2023, Korean Air announced proposed remedies to address the Commission's concerns by divesting routes to Barcelona, Frankfurt, Paris, and Rome and surrendering them (alongside slots at the relevant airports) to T'way Air, a South Korean low-cost carrier, while leasing Airbus A330 aircraft with flight crew.[37] Korean Air would also sell Asiana Airlines' cargo division, with the Asiana board giving its approval to the plan in November 2023.[38][39][40]

Korean Air resubmitted its application to the European Commission with these concessions for evaluation on November 2, 2023.[41] However, Yonhap has reported that the Commission has not resumed its investigation due to "missing information" in the submission provided by Korean Air and Asiana.[36]

In January 2024, Reuters reported that the European Commission is expected to approve the merger following concessions offered by the airlines.[42] In February 2024, Korean Air secured conditional Commission approval for the consolidation of South Korea's aviation market contingent on an acceptable buyer being identified for its cargo business and making assets available to T'way Air to start service on routes to Barcelona, Frankfurt, Paris, and Rome.[43]

Japan

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In November 2023, Japan officially moved to block the merger, citing the combined power the merged carrier would have on air traffic between Japan and South Korea where it would represent nearly 70% of flying. The objection also cited the planned merger of the two airlines' three low-cost carrier subsidiaries.[44]

Japan approved the merger on January 31, 2024.[28] As part of the agreement, the consolidated carrier has agreed to surrender slots on 7 routes if remedy takers choose to operate on them, the routes being Seoul–Incheon to Fukuoka, Nagoya, Osaka–Kansai, and Sapporo, as well as the Busan to Osaka, Sapporo, and Fukuoka to competitors.[45]

South Korea

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The Fair Trade Commission (FTC) approved the merger on February 22, 2022 with conditional clearance requiring the combined airline to give up some of their airport slots and transportation rights in certain regions.[46][47][48] The Commission assessed that the merger would result in a monopoly on 26 international routes and 14 domestic routes but deferred to overseas authorities to on corrective action by granting 10 year conditional clearance with the following conditions:[49][50][51]

  • Structural measures, including transferring the domestic and international slots and transportation rights further 10 years.
  • Restriction measures include limiting the price of airfare and prohibiting supply reduction.
  • Maintaining the qualities of customer service
  • Submitting the plan to integrate the mileage within 6 months, execute after the approval from FTC.

United Kingdom

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The UK's Competition and Markets Authority (CMA) postponed the review of the merger in November 2022, citing monopoly concerns, giving Korean Air time to propose a plan to resolve competition concerns.[52] Korean Air proposed transferring slots for seven weekly operation rights to Virgin Atlantic to launch a London–Heathrow to Seoul–Incheon route as a remedy.[53]

The United Kingdom officially approved the merger on March 1, 2023.[31][32]

United States

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In May 2023, it was reported that the United States Department of Justice (DOJ) is considering filing suit to block the merger as anticompetitive.[5][54]

To gain approval for the merger, Korean Air proposed transferring several operations to Air Premia. The transfer would include aircraft and flight crews.[55] The DOJ has rejected this proposal.[51]

In June 2024, Korean Air CEO Walter Cho stated he expected the merger to be approved in the US by October 2024.[56]

Non-essential countries

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In addition to essential countries, the companies sought review of the merger by authorities in countries considered to be "non-essential" markets.

In June 2021, the Philippines was the first "non-essential country" to approve the merger.[57] Singapore, Malaysia, Turkey, Vietnam, Taiwan, Thailand, and Australia have also officially approved the merger.[58][59][60][61][62][63]

Public reaction to proposed merger

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In October 2023, labour unions representing workers at Asiana Airlines protested the merger claiming that the ultimate goal of the deal is "the dismantling of Asiana Airlines" and that the merger "is not in the interest of the nation or the convenience of the people".[64]

In the United States, an analyst described the merger as a "tie-up between the largest U.S. carrier (Delta Air Lines, who also be the largest stakeholder of Hanjin Group, Korean Air's parent company) to South Korea and the two large South Korean airlines" virtually eliminating competition between the United States and Korea.[65]

References

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  2. ^ "Stance on Korean Air-Asiana Merger Unchanged Despite Opposition from US DOJ". Businesskorea (in Korean). June 26, 2023. Retrieved August 13, 2023.
  3. ^ Kyong-ae, Choi (June 19, 2023). "(Yonhap interview) Korean Air needs to address monopoly concerns over merger with Asiana: minister". Yonhap News Agency. Retrieved August 13, 2023.
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  37. ^ "[단독] 대한항공, "티웨이항공에 기재와 승무원까지도 이관"" [[Exclusive] Korean Air, "Transferring the fleet and crew to T'Way Air"] (in Korean). Dong A News. Retrieved October 6, 2023.
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  39. ^ "대한항공, 아시아나 화물·중복노선 '국내 매각' 추진…"국부 유출 없다"" [Korean Air seeks to 'sell Asiana cargo and overlapping routes in Korea'..."There's no leakage of the national wealth"] (in Korean). Money Today. Retrieved October 7, 2023.
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  48. ^ Yoo, Hong (February 22, 2022). "FTC grants conditional approval for Korean Air-Asiana merger over monopoly concern". The Korea Herald. Retrieved February 23, 2022.
  49. ^ "대한항공-아시아나항공 기업결합 심사결과" [Result the under reviewing the merger of Korean Air-Asiana Airlines] (Press release) (in Korean). The Fair Trade Commission of the Republic of Korea. Retrieved February 23, 2023.
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  53. ^ "영국, 대한항공-아시아나 합병 승인…美·EU·日 심사만 남았다" [Britain approves Korean Air-Asiana merger...Only the U.S., EU, and Japanese examinations remain] (in Korean). Yonhap News Agency. Retrieved November 2, 2023.
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  55. ^ "대한항공, 유럽·미주 노선에 승무원까지 경쟁사에 넘기나" [Korean Air, send the Europe·America slots to competitive airline] (in Korean). Maeil Economy. Retrieved October 18, 2023.
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  57. ^ Sim, Woo-il (June 2, 2021). "대한항공, 최근 태국 및 필리핀 경쟁당국 기업결합심의 절차 종결 (Korean Air recently completed business combination deliberation by Thai and Philippine competition authorities)" (in Korean). CBC News.
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  64. ^ "Asiana Airlines union protests Korean Air merger ahead of decision on cargo business's fate". koreatimes. October 24, 2023. Retrieved November 15, 2023.
  65. ^ Leff, Gary (November 2, 2023). "Monopolies in the Making? Delta Pulls Strings Behind The Asiana-Korean Air Merger". View from the Wing. Retrieved November 15, 2023.
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