Fair Trade Commission Likely to Conditionally Approve Korean Air-Asiana Merger... Review to Be Completed This Week

Outlook for Early Next Year Conclusion
Final Steps in Korea-Daewoo Shipbuilding Merger Review... EU Decision Is Key

[Sejong=Asia Economy Reporter Kwon Haeyoung] The Fair Trade Commission (FTC) will conclude its review this week on the mergers between Korean Air-Asiana Airlines and Korea Shipbuilding & Offshore Engineering-Daewoo Shipbuilding & Marine Engineering. A final decision is expected as early as the beginning of next year.

According to the FTC and industry sources on the 26th, the commission plans to send the review reports on the two corporate mergers to the companies this week and submit them to the plenary meeting as early as early next year. Earlier, FTC Chairman Cho Sung-wook announced at a press briefing in October that the review of the two corporate mergers would be completed within the year.

The FTC examiners who reviewed the Korean Air and Asiana Airlines merger reported that there is a restriction on competition, making corrective measures inevitable. They have been negotiating corrective action plans by signing a memorandum of understanding (MOU) with the Ministry of Land, Infrastructure and Transport.

The FTC is expected to approve the merger on the condition that the two airlines’ traffic rights are revoked. After the Ministry of Land, Infrastructure and Transport revokes the traffic rights, redistributing them to domestic low-cost carriers (LCCs) could partially resolve the issue of route monopolization. Traffic rights are operating rights allocated by governments to their national airlines through bilateral air service agreements. Korean Air and Asiana Airlines effectively hold 100% of the traffic rights on long-haul routes to the Americas and Europe, which LCCs cannot operate, and also hold a significant share on short-haul routes such as China and Japan.

The FTC is expected to ease competition restrictions by allowing domestic LCCs to enter short-haul routes such as China, Japan, and Southeast Asia, where the combined route share would reach 100%. The aviation industry also anticipates that, in the long term, some traffic rights on long-haul routes like the Americas and Europe may be revoked from Korean Air and Asiana Airlines. Although LCCs currently cannot operate long-haul routes due to the lack of large passenger aircraft, they could prepare to launch long-haul services during the two years until the integrated airline is established.

However, even if traffic rights are revoked from the integrated airline, it will be difficult for smaller LCCs to operate all long-haul routes, making it challenging to completely resolve the long-haul route monopoly issue. Korean Air also holds the position that if it gives up existing routes for the merger, the reduction in routes could harm competitiveness and raise concerns about workforce restructuring, potentially diminishing the synergy from the integration.

Other approval conditions being discussed include reducing airport slots (takeoff and landing capacity) or limiting the number of flights.

Additionally, the FTC plans to complete its review this week on Hyundai Heavy Industries Group’s Korea Shipbuilding & Offshore Engineering’s acquisition of Daewoo Shipbuilding & Marine Engineering and submit the review report to the plenary meeting. The FTC has not reached a conclusion for over two years since receiving the filing in July 2019.

So far, among the six countries subject to corporate merger filings, China, Kazakhstan, and Singapore have completed their reviews with 'unconditional approval,' while Japan, the European Union (EU), and South Korea are still conducting their reviews.

The key to the merger between the two companies lies with the EU Commission, which plans to complete its review by the 20th of next month. Since many liquefied natural gas (LNG) carrier companies are concentrated in Europe, the EU is concerned that Korea Shipbuilding & Offshore Engineering’s acquisition of Daewoo Shipbuilding & Marine Engineering could increase price competitiveness. Although the FTC independently reviews and approves the merger, if the EU issues a disapproval, it would be difficult for the FTC to make a different decision.

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