Setback for Korean Air in bid to acquire Asiana Airlines

Korean Air Lines' bid to acquire Asiana Airlines encountered a setback as the European Union (EU) antitrust regulators warned that the proposed merger could limit competition in both passenger and cargo air transport services.

Korean Air Lines and Asiana Airlines planes parked at Incheon International Airport on Thursday. [YONHAP]

Korean Air Lines' bid to acquire Asiana Airlines encountered a setback as the European Union (EU) antitrust regulators warned that the proposed merger could limit competition in both passenger and cargo air transport services.

On Wednesday, the European Commission issued a Statement of Objections to Korean Air, outlining its preliminary view on the merger of Korea's two largest airlines. The statement serves as a procedural step, while sending a Statement of Objections does not predetermine the investigation's result.

In 2021, Korean Air submitted documentation for the approval of acquisition to antitrust regulators in 14 countries. So far, it has obtained approval from 11 countries, including Britain, Australia, Singapore, Vietnam, Turkey and China. The final decisions are still pending from the EU, the United States, and Japan, while the merger could be scrapped if it fails to win approval from any one of the three jurisdictions.

The European Commission initiated an in-depth investigation into the proposed merger in February, with a final decision expected by Aug. 3.

In the statement released Wednesday, the EU competition enforcer said the merger could restrict competition in air passenger services on four routes connecting Korea with France, Germany, Italy and Spain. As of 2019, Korean Air and Asiana Airlines' combined market shares were 60 percent on the routes to Paris from Incheon, 68 percent to Frankfurt, 75 percent to Rome and 100 percent to Barcelona as of 2019.

The regulator also voiced apprehension that the merger could weaken competition in air cargo services between all of Europe and Korea.

“Korean Air and Asiana compete head-to-head in carrying passengers and cargo between the European Economic Area and Korea,” the Commission said in a statement.

“Together, they would be by far the largest carriers of passengers and cargo on these routes and the merger may remove an important alternative for customers," it added. "The merger may therefore lead to increased prices or decreased quality of passenger and air transport services."

Korean Air responded by affirming its commitment to the process and assuring that it will take necessary measures to address the concerns raised by the EU regulators.

In their statement, the airline highlighted that the latest statement issued by the European Commission is "a standard procedure in Phase 2 merger investigations," adding it will "make every possible effort to secure final approval for the merger."

"The Commission's concerns were not totally unexpected, considering that the four routes in question were mentioned [during the Phase 1 investigation] and our strong performance in the cargo transportation sector last year," a spokesperson for Korean Air told the Korea JoongAng Daily.

"We have no intention of giving up on the merger. If needed, we will submit corrective measures to address specific requests, believing that the merger will ultimately be approved," the spokesperson added.

Experts see the EU's statement as a guideline for its approval.

To obtain approval in Britain, Korean Air has already transferred seven out of the 17 slots held by Korean Air and Asiana Airlines to Virgin Atlantic. They have also transferred nine slots in China as a condition for approval.

"With about three months remaining until the EU's final decision, the Commission is tasking Korean Air with the following measures before making a decision, in a similar way to a homework assignment given by a teacher," said Hwang Yong-sik, a business professor at Sejong University.

"For now, there may be internal voices within Korean Air questioning the necessity of proceeding with the merger while adjusting significant routes, but in the long run, Korean Air could benefit from the merger in terms of market dominance and economies of scale," Hwang added.

Experts believe that corrective measures submitted to the EU could also influence the forthcoming assessments conducted by the U.S. and Japan. Taking precedent into account, these two remaining antitrust regulators may request remedies favoring their respective domestic airlines.

"Until now, the U.S. and Japan have delayed the proceedings long enough, but they are likely to consider the EU's precedent," Hwang stated, adding, "The EU has now passed the ball to Korean Air, and it is their turn to take action."

BY SEO JI-EUN [seo.jieun1@joongang.co.kr]