Korean Air-Asiana merger yet to get off the ground

The merger of Korean Air Lines and Asiana Airlines is struggling to get approval abroad as countries worry the mega-carrier will pose a monopolistic threat to their local airlines.

Korean Air Lines and Asiana Airlines' planes are stationed at Incheon International Airport. [YONHAP]

The merger of Korean Air Lines and Asiana Airlines is struggling to get approval abroad as countries worry the mega-carrier will pose a monopolistic threat to their local airlines.

In 2020, Korean Air Lines announced it would acquire 63.88 percent of Asiana, creating one of the top 10 carriers in the world in terms of air transport market share. But the merger needs to be approved by other countries, such as the United States, the European Commission, Japan, China, United Kingdom and Australia.

Since March, the U.S. Department of Justice has been reviewing the merger through a stricter process known as the second request. During the second request process, the U.S. requires a company to submit more documents to prove it won't be a monopoly.

One of the biggest issues is airline alliances.

Korean Air Lines is part of the SkyTeam Alliance with Delta Airlines, allowing code sharing arrangements and passengers to earn miles on any SkyTeam flight. Asiana Airlines is a member of the Star Alliance with United Airlines. If all their customers go to one alliance or another, it can have a big effect on the market. From the U.S. point of view, if the merger happens and Asiana joins SkyTeam, passengers will flock to SkyTeam flights, possibly taking business away from United Airlines.

Regarding the stricter review by the Justice Department, a spokesperson for Korean Air Lines said, "It happens often and doesn't mean the merger could be canceled." The company said it is "communicating with U.S. regulators to submit requested documents needed to approve the merger."

There is a recent case that could be a kind of precedent.

On May 2, Florida-based low cost carrier Spirit Airlines' board of directors rejected a buyout bid from JetBlue saying regulatory approval would be unlikely because JetBlue was part of the Northeast Alliance with American Airlines, and Spirit Airlines joining the alliance would give it too much market share in Boston and New York.

The FTC's conditional approval could have led to the stricter review of the Korean Air-Asiana deal.

The FTC gave conditional approval to the Korean Air-Asiana merger in February, but stipulated that the merged airline would have to give up traffic rights to certain regions to prevent a monopoly. They included 26 international and 14 domestic routes in which the combined market shares of the two carriers would exceed 50 percent. Some were major routes such as between Korea and New York, Los Angeles, Beijing, Sydney and Phuket.

“Other countries’ antitrust regulators will require [the merged entity to] adopt harsher regulations than those imposed by the FTC,” said Lee Yun-cheol, a business professor at Korea Aerospace University. "[The Korean government] needed to impose as few regulations as possible, but the FTC’s conditional approval itself will now act as a justification for other countries to impose stricter regulations.”

China could also cause problems for the merger.

The merged entity will be the only carrier flying the Busan-Qingdao and Incheon-Zhangjiajie routes. It is responsible for 96.3 percent of all flights on the Incheon-Xian route, 65.3 percent of all Incheon-Shenzhen flights and 66.5 percent of all Busan-Beijing flights.

The merger needs to be approved by Chinese antitrust regulators within 270 days of submission of an application, and Korean Air Lines had to cancel its submission in October last year because a decision was not expected within the time frame.

Korean Air Lines said it refiled the merger application in January and has been submitting necessary documents to the Chinese regulator.

"It just means that the review process was extended and doesn't mean that the merger will be canceled," said a spokesperson for Korean Air Lines.

Korean Air Lines President Woo Kee-hong told reporters after a Tourism Industry Committee meeting May 3 that the company “didn’t think getting approval would be easy, and although difficult, reviews are proceeding as planned.”

“We are devoting all our efforts to getting approval, responding to requests of the six antitrust regulators and giving feedback to plans to ease competition,” Woo said.

One hope for Korean Air Lines is the Yoon administration’s positive attitude.

A 1,170-page document about how the Yoon administration will carry out its election pledges, dated sometime in April, was leaked online on May 11. In the document, Yoon’s government detailed plans to create a Global M&A division under the FTC in the second half of this year.

The leaked document was confirmed to be actually from Yoon’s transition team, but the team said contents weren’t final and plans could change.

If the new division is created, it plans to make the FTC’s review of mergers swifter, although details weren't specified. The document also said the administration will try prevent M&As from failing because of overseas regulators, which happened to the merger of Hyundai Heavy Industries and Daewoo Shipbuilding & Marine Engineering after the European Commission’s veto.

“Various antitrust regulators abroad are reviewing the case and there could be further conditions imposed on the routes, possibly different from FTC’s decision,” said a spokesperson for FTC. “We are considering holding another meeting to revise some conditions after taking a look at decisions by overseas regulators.”

BY LEE TAE-HEE [lee.taehee2@joongang.co.kr]