Final Puzzle of Korean Air and Asiana Merger Completed... Fair Trade Commission Imposes 5 Conditions

The corporate merger between Korean Air and Asiana Airlines has come to a close. On the 12th, the Korea Fair Trade Commission (KFTC) finalized the review of the merger between the two major airlines. Approximately four years after Korean Air filed the merger notification in January 2021, the era of the two major national airlines has ended, and they have transformed into a giant airline ranked around 11th in the world, opening new air routes. However, several conditions were imposed, reflecting the review results of overseas competition authorities, including prohibitions on reducing supply seats and voluntary return of traffic rights for routes that are discontinued.

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On this day, the KFTC stated, "We have finalized the merger review with some changes to the corrective measures, reflecting the review results of overseas competition authorities."

Korean Air completed the payment for acquiring 131,578,947 new shares by participating in the third-party allotment capital increase conducted by Asiana Airlines the day before. According to the Commercial Act, Korean Air will incorporate Asiana Airlines as a subsidiary on this day, one day after the payment date for the new shares. The Commercial Act stipulates that the rights and obligations of shareholders (new share subscribers) arise from the day following the payment date.

Previously, in May 2022, the KFTC conditionally approved the merger of the two companies. Subsequently, the merger, in which Korean Air acquired 63.9% of Asiana Airlines' shares, received approval from competition authorities worldwide, including the European Union (EU), the United States, Japan, China, and Australia. On this day, the KFTC finalized the review by changing some of the corrective measures, reflecting the completion of overseas competition authorities' reviews and the restructuring situation of the aviation industry following the end of the COVID-19 pandemic. The finalization of the KFTC's merger review was the last puzzle piece remaining for the merger of the two companies.

Following a plenary meeting held the day before, the KFTC decided on five major changes to the corrective measures to be imposed: ▲ Recognizing the implementation of corrective measures when alternative airlines enter U.S. and European routes, ▲ Prohibiting the reduction of supply seats to less than 90% of the pre-2019 level, ▲ Monitoring the implementation of corrective measures through the Korea Fair Trade Mediation Agency, ▲ Recognizing voluntary return of traffic rights for discontinued and abandoned routes, ▲ Setting limits on the transfer of foreign airport slots.

First, the KFTC revised the corrective measure requiring the return of slots (the number of aircraft takeoffs and landings allowed per hour at an airport) and traffic rights (government-allocated operating rights) imposed on certain routes. In 2022, the KFTC judged that if other airlines entered 40 routes where fare increases were a concern due to the merger, slots and traffic rights must be returned to the authorities.

At that time, the return was to be implemented after the merger date, but following overseas competition authorities' corrective measures, the entry of T'way Air into four European routes and Air Premia into five U.S. routes prior to the merger date will also be recognized as compliance with corrective measures.

Additionally, reducing the number of supply seats per route to less than 90% of the 2019 level, before the COVID-19 pandemic, is prohibited. Koo Tae-mo, head of the KFTC's Corporate Merger Division, explained, "Considering that many indicators such as total supply seats in the aviation market, number of passengers, and fleet size have recovered to more than 90% compared to 2019, just before the COVID-19 pandemic, as of the first half of this year."

An "Implementation Monitoring Committee" to oversee the compliance of the integrated airline with corrective measures will be established before March next year. The KFTC plans to conduct supervision in cooperation with the Ministry of Land, Infrastructure and Transport, the aviation authority. To this end, the KFTC has also prepared the basis for delegating monitoring authority to the Korea Fair Trade Mediation Agency. A KFTC official said, "To closely monitor compliance with corrective measures, the KFTC will cooperate with the Mediation Agency and the Ministry of Land, Infrastructure and Transport."

The KFTC stated, "As this is a matter of great public interest, the KFTC will thoroughly inspect to prevent violations of corrective measures such as excessive fare increases, supply reductions, and mileage program deterioration after the merger, and will work closely with the Ministry of Land, Infrastructure and Transport to ensure that consumers do not suffer damages."

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