Conflicting Outlooks Ahead of US Review on Korean Air and Asiana Merger

Conditional Approval from EC Yesterday... Korean Air Expects Integration Within the Year
Only US Decision Remains... Concerns of "Cannot Be Optimistic"

The European Commission (EC) has approved the corporate merger of Korean Air and Asiana Airlines, leaving only the decision from the United States for the launch of the national mega airline. Korean Air expects to complete the merger review in the first half of this year and anticipates integration within the year. However, the industry predicts that the U.S. review may take longer than initially expected. Even after the U.S. approves the merger, a series of procedures such as the sale of Asiana's cargo business and allocation of traffic rights, which were set as conditions, must be completed.

On the 14th, Korean Air and Asiana Airlines announced that the deadline for the completion of Asiana Airlines' paid-in capital increase transaction has been extended to December 20. The listing of new shares is expected around mid-January next year. Due to delays in regulatory reviews caused by COVID-19 and other factors, the deadline has been extended several times. Previously, according to an agreement between the government and the two airlines in 2020, Korean Air agreed to participate in Asiana Airlines' paid-in capital increase, which requires approval from major competition authorities. With the EC granting conditional approval yesterday, reviews have been completed in 13 countries starting with T?rkiye (Turkey). Now, only the U.S. competition authority (Department of Justice) remains to decide, marking the end of the necessary competition authority reviews for the merger.

Opinions on the U.S. decision are divided. Since Korea has an air service liberalization agreement with the U.S., it was initially expected that concerns about competition restrictions would be minimal because flights could operate even without traffic rights. Air Premia also operates flights to some U.S. regions. A Korean Air official explained, "In the passenger sector, domestic airlines have already entered routes to LA, New York, and Hawaii, and the remaining routes (Seattle and San Francisco) are planned. In the cargo sector, like other competition authorities, concerns of the U.S. authorities can be alleviated through the separate sale of the cargo business."

On the other hand, there is also a view that it is not possible to be optimistic because the U.S. has been strict about competition restrictions from the start, and with the election approaching, there is a possibility of a stronger trend toward domestic-first policies. Local reports indicate that the U.S. Department of Justice, which is in charge of the review, is considering litigation, and local courts have issued rulings blocking mergers among local low-cost carriers (LCCs). There are also persistent reports that United Airlines, which has a partnership with Asiana Airlines, is negative about the merger. United Airlines operates joint flights with Asiana, so the competitiveness of routes would inevitably decline after the merger.

View of the airport apron from the observation deck at Incheon International Airport
[Photo by Yonhap News]

If the U.S. competition authority approves, a series of procedures such as Korean Air's subsidiary incorporation after the paid-in capital increase and the sale of Asiana's cargo business must be completed. Although the COVID-19 pandemic has spread awareness of the need for airlines to diversify their business portfolios, it is uncertain whether it will be easy to find actual buyers. This is because the cargo aircraft currently operated by Asiana are old, and it is unclear whether they can generate profits as before. Domestic LCCs such as T'way and Jeju Air are considered potential buyers.

The industry expects that the merger of the two airlines will realize economies of scale. In terms of revenue passenger kilometers, the combined company is expected to rise to the top 10 globally. Even if the Asiana cargo division is separated, Korean Air alone ranks around 6th in the world for cargo transport. Unifying the aircraft maintenance, repair, and overhaul (MRO) system can reduce costs and improve safety, which is also positive. On the other hand, resistance due to changes in employee treatment during the corporate and brand integration process and Asiana Airlines' massive debt are challenges that need to be addressed. There are also criticisms that transferring slots (airport takeoff and landing frequencies) to foreign airlines during the integration process was a loss.

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