Progress and Challenges in Korean Air’s Merger with Asiana Airlines

In a significant development, Korean Air Co. announced on Wednesday that Japan’s antitrust regulator has approved the 1.8 trillion-won ($1.34 billion) merger deal with its smaller rival, Asiana Airlines Inc.

This approval from the Japan Fair Trade Commission (JFTC) marks a crucial milestone in the merger process of South Korea’s two major carriers. The proposed merger, signed in November 2020, aims to position the combined entity as the world’s 10th-largest airline by fleet size.

While the merger has received approval from 12 countries, including Japan, there are still pending approvals from key markets such as the European Union and the United States. The European Commission has set a new deadline of February 14, 2024, to decide on Korean Air’s proposed acquisition of Asiana Airlines. The process, though lengthy, has seen positive developments, with the EU’s antitrust chief describing the progress as very good.

To secure approval from the JFTC, Korean Air actively engaged in dialogues to address concerns raised by the regulatory body. The JFTC specifically requested remedies for select routes between South Korea and Japan, where the combined market share of Korean Air and Asiana Airlines could potentially limit competition. Korean Air responded by deciding to cede a limited number of slots on seven routes, including popular connections such as Seoul to Osaka and Busan to Fukuoka.

The JFTC also expressed concerns about the bilateral cargo network. However, Korean Air’s commitment to divest Asiana’s cargo business was seen as a positive step, leading the JFTC to limit its request for the airline to enter into a cargo block space agreement on select routes. The divestiture, subject to approval from all remaining competition authorities, will take place after Asiana Airlines is incorporated as a subsidiary of Korean Air.

While Asiana Airlines has approved the sale of its cargo unit, challenges remain, particularly regarding the high valuation of about $520 million, including debt. Potential buyers with a current air operator’s certificate and the financial capability to acquire Asiana’s cargo business include Air Premia, Eastar Jet, and Air Incheon. The EU’s decision on the corrective action plan, which includes the cargo business sale, will likely influence the outcomes with the United States and Japanese governments.

The United States Department of Justice had previously expressed concerns about the merger potentially harming competition in passenger and cargo traffic between South Korea and the United States. However, no further announcements have been made, and the DOJ’s decision is pending. If approved, Asiana Airlines, along with its loyalty program, would merge into Korean Air, creating a major combined airline in South Korea.

Korean Air remains committed to completing the acquisition of Asiana Airlines in 2024, despite the complexities and challenges faced during the approval process. The ongoing dialogue and cooperation with regulatory authorities worldwide reflect the airline’s dedication to addressing concerns and ensuring a smooth transition in creating a robust and competitive air travel landscape in South Korea. The coming months will unveil the final chapters of this transformative merger, shaping the future of the aviation industry in the region.