‘Merger Major Hurdle Over’ Asiana Board Approves Cargo Sale

Korean Air Submits Corrective Action Plan to EU
Plans to Expand Support for Financially Struggling Asiana
US and Japan Reviews to Follow After EU Final Approval
Issue of Finding Buyer for Cargo Division Remains

The Asiana Airlines board of directors has decided to separate and sell its cargo business to facilitate the merger with Korean Air. Korean Air will promptly submit the proposed remedy plan to the European Union (EU) competition authorities. After the EU review, examinations by the U.S. and Japanese competition authorities will follow, so the final decision on the merger will not be known until next year. The issue of finding a company to acquire the cargo business also remains.

Asiana Airlines announced on the 2nd that “the board approved the original plan after discussing whether to agree to the remedy plan submitted by Korean Air to the EU Commission.” Five directors (one inside director and four outside directors) attended the board meeting, but only four participated in the vote. The related agenda passed with three votes in favor and one abstention. Korean Air plans to submit the remedy plan to the EU Commission within today. With Asiana Airlines’ board agreeing to the submission of the remedy plan, Korean Air promptly submitted it to the EU Commission.

Regarding the merger of Korean Air and Asiana Airlines, discussions on the sale of Asiana Airlines' cargo business are scheduled at the board meeting on the 2nd. An Asiana Airlines aircraft is taking off at Gimpo Airport in Gangseo-gu, Seoul. Photo by Jinhyung Kang aymsdream@

This board meeting was held to decide whether to agree to Korean Air’s remedy plan to be submitted to the European Commission (EC). Specifically, the remedy plan involves alleviating competition concerns by separating and selling the cargo business. Regarding the passenger business, the plan includes supporting domestic low-cost carriers (LCCs) to enter four overlapping European routes (Paris, Frankfurt, Rome, Barcelona).

Last month, Korean Air held a board meeting and passed an agreement with Asiana Airlines to ensure that the buyer of the cargo division would commit to maintaining employee employment and improving working conditions. It also prepared financial support measures for Asiana Airlines. In 2020, Korean Air signed a merger contract with Asiana and provided 700 billion KRW as a deposit and interim payment. However, this money was held as escrow funds with restricted usage. After submitting the remedy plan, this amount can be withdrawn and used, but only for operating funds until EU merger approval is granted. After EU approval, 150 billion KRW out of the 300 billion KRW deposit will be converted into a performance bond.

Upon receiving the remedy plan, the EU Commission will announce the date for notifying the review results and begin the examination. The final decision on the merger is expected next year. Even if the EU approves the merger, reviews by the U.S. and Japan remain. The U.S. review is expected to be as stringent as the EU’s. In May, local reports stated that the U.S. Department of Justice (DOJ) informed Korean Air that approval would be difficult due to monopoly concerns on trans-Pacific routes after the merger. At that time, Korean Air stated it had not received such notification.

Korean Air is actively responding to concerns from U.S. competition authorities. It is known to have already selected Air Premia as a replacement carrier for trans-Pacific passenger routes. It also named T’way Air as a replacement for European routes, aligning with the remedy plan submitted to the EU. Among 13 trans-Pacific routes, five routes?New York, San Francisco, Honolulu, Los Angeles, and Seattle?are subject to this. Korean Air is expected to transfer aircraft and crew, including pilots, to Air Premia.

The issue of finding a domestic company to purchase the cargo division remains. The cargo business saw a temporary surge in sales during the COVID-19 pandemic but has since normalized. Cargo sales peaked at 3.1493 trillion KRW in 2021, accounting for over 70% of total air transport sales (4.3421 trillion KRW). However, cargo sales in the first half of this year were 779.5 billion KRW, only 21.7% of the 3.5886 trillion KRW in air sales. This is close to the pre-COVID-19 2019 level of 19.3% (1.3116 trillion KRW). An investment banking industry official said, “Price is the biggest issue,” adding, “Because performance is volatile, there may not be many interested parties.”

However, the sale is expected to reduce Korean Air’s burden. Choi Go-woon, a researcher at Korea Investment & Securities, explained, “Even considering the reduction of some long-haul routes and the sale of Asiana Airlines’ cargo division, this is still the most efficient investment Korean Air can make.” He added, “Even after merging with Asiana Airlines, the debt ratio is expected to remain below 300%, and selling the cargo division will actually reduce financial burdens.”

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