[Desk Column] Industrial Restructuring and Monopoly

November 2020. Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, made a sudden announcement at the meeting of ministers for strengthening industrial competitiveness about the merger of Korea’s top two airlines, Korean Air and Asiana Airlines. This announcement came just over two months after the collapse of HDC Hyundai Development Company's acquisition contract for Asiana Airlines, a scenario no one had anticipated. At the time, Asiana Airlines was on the brink of bankruptcy after the failed sale deal, and Korean Air was embroiled in a management rights dispute, making the future uncertain. The game-changer was the Korea Development Bank (KDB). The KDB task force, urgently formed mainly with executives from the Corporate Restructuring Office, cautiously approached major groups as potential acquirers. In this process, interests aligned with Hanjin Group, which had been involved in a management rights dispute with KCGI (Kang Sung-bu Fund). With KDB’s financial injection, Hanjin was able to maintain management control, and KDB could reduce the risk of non-performing assets. This is why the market regarded the merger of the two companies, which no one had expected, as a ‘masterstroke.’

Of course, the merger of the top two airlines was not free from monopoly concerns. However, the rationale of ‘economies of scale’ carried more weight. Given that the global aviation industry was facing a restructuring crisis due to the COVID-19 pandemic, the argument was that economies of scale were necessary to strengthen the competitiveness of the domestic aviation industry. KDB had long pondered how the domestic aviation industry could survive, and the answer was the launch of a ‘mega carrier’ through the merger of the two airlines. The court also supported the merger by dismissing KCGI’s injunction request to prohibit new share issuance against Hanjin KAL. The merger, led by the government, proceeded smoothly with the justification that it should be viewed from the broader perspective of ‘national interest’?strengthening the competitiveness of the Korean aviation industry?rather than concerns about monopoly. It was reminiscent of the 2019 announcement of the merger between the world’s first and second largest shipbuilders, Hyundai Heavy Industries and Daewoo Shipbuilding & Marine Engineering, which had attracted much attention.

However, more than a year later, this grand rationale has vanished. Instead, monopoly concerns have taken its place. The Korea Fair Trade Commission (KFTC), which is reviewing the corporate merger of the two airlines, stated that the route forming a monopoly through the merger should be reduced and transferred to other airlines. This was due to concerns that consumers could suffer from price increases caused by the monopoly. The industrial restructuring led by the government has ironically been hampered by government agencies. A similar situation is unfolding with the KFTC’s refusal to approve the merger of Hyundai Heavy Industries and Daewoo Shipbuilding & Marine Engineering, citing difficulties in overcoming the EU’s corporate merger review. The atmosphere among overseas competition authorities such as those in the US and EU, who are already skeptical about the mergers of domestic airlines and shipbuilders, is unfavorable. They may criticize, questioning why Korea should approve when their own countries do not proactively do so.

The fact that prices could rise due to monopoly can indeed be detrimental to consumers. However, if the big deal launches with the KFTC’s conditional requirements that ‘separate the car and the cannon,’ the government’s grand plan to take the lead in global competition may end up only as a sketch. Missing the golden window for restructuring could mean massive additional support funds must be injected again with taxpayers’ money. This too is a burden on the public. If this big deal ends in failure, who should be held responsible? The Deputy Prime Minister who led the industrial restructuring? The KDB that devised the big deal plan? Or the KFTC that put the brakes on the rationale of competitiveness? At this rate, companies alone might bear the full burden. Lee Eun-jung, Head of the Industry Department mybang21@

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