Korean Air-Asiana Airlines M&A Approval is Up in the Air

The proposed acquisition between Korean Air and Asiana Airlines faces significant hurdles as the US Department of Justice (DoJ) and the European Union (EU) have expressed concerns about reduced competition on specific passenger and cargo routes. 

Rationale of the deal

The merger would create the largest carrier of passengers and cargo on routes between the European Economic Area (EEA) and South Korea. Korean Air owns 23 freighters, including seven Boeing 747-8 and twelve 777 aircraft, making it the fifth-largest cargo carrier globally by volume. Asiana Airlines possesses ten Boeing 747 freighters and one 767 aircraft. 

Chances of Approval

The parties are facing an uphill road to get the necessary approvals to close the deal. While the UK Competition and Markets Authority, as well as the antitrust authorities in South Korea and China, have approved the deal, approvals from the EU, Japan, and the US are still pending.

Challenges

The DoJ is considering legal action to prevent the merger, fearing the combined airline will dominate certain passenger and cargo routes to the US. In particular, DoJ has concerns in overlapping routes to the United States, since both airlines offer flights to Honolulu, Los Angeles, Seattle, New York City and San Francisco.

If the DoJ seeks to block the deal, it will mark the first by the US government to a foreign airline. In order to address DoJ’s concerns, Korean Air had proposed handing some of its international routes to Korea’s low-cost carrier Air Premia Inc. Air Premia, an industry newcomer, is expanding its international routes. But the DoJ denied that proposal, saying Air Premia wouldn’t be competitive enough to challenge the combined entity of Korean Air and Asiana, the sources told The Korea Economic Daily. 

The EU’s antitrust regulator has also expressed concerns over the acquisition. In particular, the Commission believes the merger could reduce competition in the provision of passenger transport services between South Korea and France, Germany, Italy, and Spain, as well as the provision of cargo transport services between all of Europe and South Korea.

The EU opened an in-depth investigation on February 17, 2023, and now has until August 3, 2023, to issue its final decision. The Parties have the opportunity to reply to the Commission’s Statement of Objections, to consult the Commission’s case file and to request an oral hearing before offering remedies

Calendar

The Parties had notified the merger to 14 competition authorities as of January 2021. Eleven authorities have either authorized or concluded the examination on the grounds that the merger was not subject to scrutiny or reporting. As of June 2023, there are three pending approvals, from the European Commission, Japan, and the United States. 

The EU is now in its second phase review with a statutory deadline for a decision set for August 3. However, in complex merger, it is not unusual for the regulator to extend the statutory deadline. Additionally, if the parties were to offer remedies, the deadline will likely be pushed back. Thus, a final decision isn’t likely until Q4. Japan has only just launched its preliminary consultation stage and the DoJ recently asked for more time to grant its approval, with no official deadline set for the emission of a formal opinion.

Precedents

Previous merger cases, such as American Airlines-US Airways, United Airlines-Continental Airlines, and Delta-Northwest, in the United States involved regulatory scrutiny and conditions to protect competition.

After lawsuits to block a merger between JetBlue Airways and Spirit Airlines and against a partnership between JetBlue and American Airlines, the department’s potential lawsuit would be the third attempt by the Biden administration to stop what it sees as monopolistic practices in the airline industry.

In Europe, some negative precedents for the parties would include the European Commission’s rejection of the Ryanair-Aer Lingus in 2013, and the first review of Iberia’s acquisition of Air Europa in 2020, when the parties abandoned the deal due to regulatory concerns and the impact of Covid-19 in the airline industry. The parties filed a second merger request that is currently under review by the European Commission.