Korean Air Accepts Merger Conditions in Revised EU Proposal

Korean Air has taken a significant step towards securing approval for its proposed merger with Asiana Airlines, as it has accepted most of the conditions imposed by European Commission regulators. The airline will formally submit an amended application to Brussels on September 27, acknowledging and agreeing to the conditions set forth by the commission, reported Yonhap News Agency

The conditions outlined by the European Commission include the sale of Asiana’s profitable cargo arm, the withdrawal from selected routes between South Korea and the European Union, and the relinquishment of slots at certain EU airports. Among the routes proposed to be dropped are Seoul Incheon – Rome Fiumicino, Seoul Incheon – Paris CDG, Seoul Incheon – Frankfurt International, and Seoul Incheon.

Korean Air and Asiana currently hold a combined market share of 60.06% on the Frankfurt route, which they share with Air Premia and Lufthansa. On the Paris route, the two carriers hold a combined 67.01% market share, with Air France accounting for the remainder. Additionally, on the Barcelona route, Korean Air and Asiana have a combined market share of 76.2%, with Air Premia being the other Korean operator on the route. It is worth noting that Korean Air and Asiana are the sole operators on the Seoul – Rome route.

Read more: EU Regulators Pause Korean Air-Asiana Deal Probe

Korean Air has previously demonstrated its willingness to surrender routes and slot pairs to obtain merger approval. Earlier this year, the airline handed over seven slot pairs on the Seoul – London Heathrow route to Virgin Atlantic, securing approval from the UK’s Competition and Markets Authority. It also gave up 46 slot pairs across multiple airports in mainland China to gain approval from the country’s competition regulator. Reports suggest that Korean Air has offered to surrender slot pairs at San Francisco, CA, and New York JFK to garner support from US antitrust authorities.

Asiana’s lucrative cargo arm, which generated KRW3 trillion won (USD2.2 billion) in 2022, will be divested as part of the merger agreement. This arm accounted for over half of Asiana’s total revenues that year. In contrast, Korean Air’s larger cargo arm, which will remain intact, achieved revenue of over KRW10 trillion (USD7.4 billion) in 2022.

The proposed merger, which involves Korean Air acquiring a 63.9% stake in Asiana for KRW1.8 trillion (USD1.3 billion), was initiated in late 2020 with the aim of achieving greater synergies. Korean Air had hoped to complete the merger in 2021, absorbing Asiana and positioning itself as one of the world’s top ten passenger airlines by 2022. However, the airline has faced challenges in obtaining regulatory approval in several key markets.

While concerns have been raised about the potential negative impact on Korea’s national competitiveness in the aviation industry, Korean Air CEO Cho Won-tae has expressed unwavering determination to see the merger through. “We have staked 100% on the Korean Air-Asiana merger,” Cho stated in June. “We will make it happen no matter what we have to give up.”

The European Commission initially indicated that it would reject the merger proposal due to serious competitive issues. However, it has allowed Korean Air and Asiana to respond to these concerns, while challenges raised in jurisdictions such as the United States and Japan continue, with the airline saying it anticipates minimal objections.

Source: CH Aviation