Will the Korean Air-Asiana Merger Succeed? Fair Trade Commission's Corporate Merger Review is Key

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[Asia Economy Reporter Kim Eun-byeol] Hanjin Group, which owns Korean Air, is reportedly considering acquiring Asiana Airlines, bringing the creation of a mega airline within reach. However, the hurdle of the Fair Trade Commission's (FTC) corporate merger review remains.

If the two companies merge, their domestic market share will exceed 60%. The FTC may disallow the merger if it restricts market competition, or approve it with conditions such as price increase restrictions or divestiture of specific business units.

According to the government on the 15th, if the Korean Air-Asiana Airlines merger (M&A) is finalized and Hanjin Group submits a corporate merger notification, the FTC plans to begin the review process in earnest.

Under the Fair Trade Act, when conducting an M&A, if the total assets or sales of the notifying company exceed 300 billion KRW and those of the counterparty exceed 30 billion KRW in the previous fiscal year, FTC approval is required. As of the end of last year, Korean Air's domestic market share was 22.9%, and Asiana Airlines' was 19.3%. Including the low-cost carriers (LCCs) of both companies such as Jin Air, Air Busan, and Air Seoul, their combined market share would reach 62.5% upon merger.

The FTC may disallow the merger if it determines that the corporate combination would create a monopolistic or dominant player in the market, exerting significant pressure to raise prices. This is a measure to prevent the negative effects of monopoly in the market. A representative case is the FTC's disapproval of the 2016 merger between SK Telecom and CJ HelloVision.

There is also a possibility that the FTC will grant conditional approval for the Korean Air and Asiana Airlines merger. However, conditional approvals typically come with measures such as prohibiting price increases beyond the consumer price inflation rate or requiring the sale of key routes. Such outcomes are very rare in mergers involving companies facing financial difficulties.

Therefore, rather than the issue of competition restriction or conditions for allowing the merger, the key factor is likely to be whether Asiana Airlines is a company that cannot be rehabilitated. The FTC exceptionally allows mergers that restrict market competition if the company is deemed non-viable and its production facilities would otherwise be difficult to continue utilizing in the market. Examples include the approvals of Jeju Air-Istar Air and Hyundai Motor-Kia Motors mergers.

However, if the FTC approves the merger on the grounds that Asiana Airlines is non-viable, it is expected to spark controversy as it would appear that the state-run Korea Development Bank and government ministries are pouring additional public funds into a company they have judged to be non-viable, under the pretext of future normalization.

Another variable is that the merger must also undergo review by foreign competition authorities. Even if the FTC approves, if countries where Korean Air and Asiana Airlines generate revenue do not approve the merger, the merger itself will be nullified.

This content was produced with the assistance of AI translation services.