Korean Air faces setback from EU to acquire Asiana Airlines

Korean Air Lines and Asiana Airlines planes are stationed at the Incheon International Airport on May 18. [Photo by Yonhap]

Korean Air Lines Co., South Korea’s national flag carrier, has encountered a setback in its bid to acquire smaller local rival Asiana Airlines Inc. as the European Commission is demanding a condition that is difficult for the country’s biggest carrier to accept.

According to industry sources on Wednesday, the European Commission recently issued a Statement of Objections to Korean Air, calling for the national flag carrier to transfer some of the airport slots held by it and Asiana Airlines to other Korean airlines capable of operating services to four major EU countries, including France, Germany, Italy and Spain, as a condition for its approval of the merger. An airport slot is an authorization to either take off or land at a specific airport at a particular time during a specific day.

The EU antitrust regulator had been conducting an in-depth Phase 2 merger investigations of the business combination since February. Korean Air must submit corrective measures to address specific concerns contained in the SO within a certain period of time. The company must also submit a separate document containing comprehensive corrective measures to address antitrust concerns to the EU regulator by June. Based on this, the regulator will proceed with its final deliberation and decide whether to approve the merger by Aug. 3.

The EU’s move came out of concern that the proposed merger could restrict competition in both passenger and cargo services for the region. However, the problem is that there are practically no Korean airlines other than the two that have the capacity to simultaneously offer services on the four routes.

Excluding Korean Air and Asiana Airlines, T’way Air Co. and Air Premia Inc. are the only local airlines that have large enough planes to operate on Europe. T’way Air has three Airbus SE A330-300s and Air Premia five Boeing Co. 787-9s. However, these numbers are so small for the two airlines to simultaneously operate services on the four routes.

Currently, Korean Air is reportedly in talks with the two airlines to discuss ways to establish a competitive structure among them, including Korean Air leasing about 10 large planes to the airlines. Korean Air and Asiana Airlines currently own about 70 and 40 widebody aircraft that can fly to Western Europe, respectively. T‘way Air reportedly plans to secure 20 large planes on its own. However, T’way Air has no track record of serving on long-haul routes, such as to the Americas and Europe, and Air Premia has only six years of experience serving on routes to the U.S. and Norway.

In this situation, Korean Air is considering transferring its slots to one of local low-cost carriers and some of European airlines. In fact, when the U.K. Competition and Markets Authority (CMA) announced its approval of Korean Air’s merger with Asiana Airlines in March, Korean Air resolved the monopoly issue by handing over seven slots at London Heathrow Airport to British airline Virgin Atlantic Airways Ltd.