Korean Air wary of Asiana deal after EU blocks HHI-DSME merger

Korean Air Lines Co. and Asiana Airlines Inc. are wary of the fate of their proposed merger after the European Union blocked the combination of South Korea’s two shipbuilders, the world’s two largest, citing monopoly concerns.

According to aviation industry officials on Friday, the European Commission will likely announce the results of its regulatory review on the Korean Air-Asiana deal by mid-February.

The two full-fledged carriers are also awaiting the go-head from four other aviation authorities in the US, Japan, China and Korea, and analysts say the EU may attach harsher conditions to its approval than the other authorities, given its recent track records.

Last month, Korea’s Fair Trade Commission (FTC) approved the merger with conditions, including business restrictions, to address monopoly concerns.

Under the conditions set by the FTC, the two companies are required to relinquish a portion of their airport slots and traffic rights, which will be reallocated to other airlines.

The Korean regulator has also called for service cutbacks to some overseas routes, while asking Korean Air to refrain from fare increases.

Korean Air complained the FTC conditions are hard to accept, saying that it would see little synergy from its acquisition of the debt-laden domestic rival.

Upon receiving a revised merger proposal from Korean Air, the FTC will give its final ruling at a meeting scheduled for later this month.

The European Commission is expected to announce its decision on the Korean Air-Asiana combination after taking the FTC’s ruling into consideration.

TRACK RECORD OF TIGHT SCRUTINY

The proposed merger requires regulatory approval from a total of nine antitrust agencies across the globe, and Korean Air has so far received approval from four countries – Turkey, Taiwan, Thailand and Vietnam.

Last year, European regulators rejected a $190 million deal that would combine Air Canada, the country’s largest airline, with Canada’s No. 3 carrier Transat AT, citing antitrust regulations.

The European Commission said at the time the two Canadian airlines operate a combined 30 overlapping Canada-Europe routes, which could hurt fair competition with other European carriers.

Some analysts said conditions for the Korean Air-Asiana merger will be different as the two Korean carriers operate only four overlapping Korea-Europe routes.

Korean Air and Asiana are also smaller in size compared with their global peers.

Korean Air is the world’s 18th-largest carrier and Asiana ranks 32nd in terms of international passenger traffic as of 2020.

Korean Air’s parent Hanjin KAL Corp. and its main creditor Korea Development Bank announced in November of 2020 that Korean Air will acquire a 63.9% stake in Asiana for 1.8 trillion won ($1.6 billion) to create one of the world’s leading carriers by 2024

Write to Jeong-Min Nam at peux@hankyung.com
In-Soo Nam edited this article.