This Week's Major Turning Point... Korean Air and Asiana Merger Faces Delay in the UK

Merger Suspension Decision Due to Monopoly Concerns
May Influence US Decision on the 15th

[Asia Economy Reporter Yoo Hyun-seok] The merger between Korean Air and Asiana Airlines has hit a major turning point this week, but it faced a setback from the start. The UK Competition and Markets Authority (CMA) has suspended the merger of the two companies due to concerns over monopoly. Although this is not a final decision, there are concerns that it could be a critical hurdle as it may influence decisions by the European Union (EU) and the United States, the most important countries in this matter.

According to the aviation industry on the 15th, the UK CMA suspended the merger of Korean Air and Asiana Airlines on the 14th (local time). The CMA noted that since Korean Air and Asiana Airlines are the only airlines operating the Seoul-London route, a merger could lead to higher prices and a decline in service quality. In the cargo sector, the CMA also judged that the merged companies, as major providers of direct cargo services between Korea and the UK, might impose higher transportation costs. The CMA explained, "Although customer demand on the Seoul-London route has decreased due to COVID-19, Korean Air is effectively in a dominant market position."

The UK CMA's decision raises the possibility that the approval of the Korean Air-Asiana merger within this year may be delayed. Korean Air must submit a proposal for remedial measures to address concerns about market competition restrictions by the 21st of this month. Afterward, the CMA will decide by the 28th whether to accept Korean Air's proposal or to initiate a more in-depth Phase 2 investigation. If the proposal is accepted, the merger will be approved. If there are issues, a second review will proceed. If the second review takes place, it will be practically difficult to obtain merger approval within this year.

Korean Air plans to propose remedial measures acceptable to the UK to ensure the merger proceeds smoothly. Korean Air stated, "The UK CMA's announcement is an interim result, not a final decision," and added, "We are currently in discussions with the UK competition authorities and plan to finalize and submit remedial measures soon."

Besides the UK, the remaining countries where Korean Air needs merger approval include the United States, the EU, China, and Japan. If approval is not obtained from even one of these, the merger will fall through. The industry is particularly focusing on the US decision expected on the same day (local time). Depending on the US decision, a full-scale review is likely to proceed in essential countries such as the EU, China, and Japan. A Korean Air official explained, "Unlike the UK, the US does not announce decisions publicly but proceeds through consultations with us, so the outline will only become clear on the day."

The longer the merger approval process takes, the more urgent the situation will become for Korean Air and Asiana Airlines. This is because Asiana Airlines' circumstances are not easy. Although Asiana Airlines recorded an operating profit of 229.3 billion KRW in the third quarter, it posted a net loss of 172.3 billion KRW due to increased foreign exchange losses caused by a sharp rise in exchange rates. While it has escaped the risk of complete capital erosion, it remains partially insolvent. To overcome this, large-scale capital increases and other financing measures are necessary. Korean Air is preparing a capital increase of 1.5 trillion KRW for Asiana Airlines, but support is only possible once the merger is approved.

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