Korean Air mulls divestment of Asiana's cargo business for merger

Korean Air may divest Asiana Airlines' cargo business and some European slots to address antitrust concerns amid the merger review by European regulators.

A cargo plane of Asiana Airlines [ASIANA AIRLINES]

Korean Air may give up Asiana Airlines' cargo business division as well as some of its lucrative European slots as it struggles to win approval of European antitrust regulators regarding the merger with its smaller rival.

Korean Air is soon to draft a merger remedy proposal that incorporates solutions to address antitrust concerns raised by the European Commission (EC), currently reviewing the merger of Korea's two biggest airlines, according to local media outlets citing investment banking sources.

Korean Air neither confirmed nor denied these specific measures, saying, “It is difficult to reveal specific details of the ongoing remedies proposal discussions, in line with the guidelines set by competition authorities.”

“We are currently in detailed discussions with EU regulators to address existing competition constraints,” an official from Korean Air said, adding that they plan to conclude the remedy proposal by “the end of October.”

The cargo business has gained prominence, especially in the wake of the Covid-19 pandemic.

Asiana Airlines recorded a revenue of 3 trillion won ($2.22 billion) in 2022 from its cargo operations, surpassing half of its total revenue of 5.63 trillion won for the year. When combined with Korean Air's cargo business revenue of 7.72 trillion won from the previous year, the merger could result in an annual cargo revenue exceeding 10 trillion won.

Furthermore, Korean Air is reportedly weighing the return of four out of its 14 European routes. These routes, connecting Incheon to Paris, Frankfurt, Rome, and Barcelona, are areas of concern due to both Korean Air and Asiana Airlines operating in them, raising monopoly-related issues.

The European Union watchdog had highlighted its concerns in its interim report from May, related to “reduced competition in passenger transport services” on the four routes mentioned earlier and “in cargo transport services” between all of Europe and Korea.

The EC originally planned to announce the merger's approval on Aug. 3 but decided to postpone it by two months as per Korean Air's request.

Korean Air awaits approval not only from the EC but also from the U.S. Department of Justice, and Japan. The merger would fall through if any of the three jurisdictions decides against approval.

“We are in this [deal] 100 percent,” said Walter Cho, chairman of Hanjin Group, in a media interview in June. “We'll have to make it happen regardless of what we have to give up, [...] but I'm thinking in the long term, this is still a gain for me. So I am willing to negotiate all of it and talk to the regulators.”

Meanwhile, Asiana's pilots union officially voiced its opposition to the merger deal through a statement released on Tuesday, expressing concerns that it could potentially lead to a monopoly.

The union strongly criticized what they termed as a “traitorous practice” of easily transferring air traffic rights, which they consider as both tangible and intangible assets belonging to the nation and its citizens.

“If the creditors [the Korea Development Bank] genuinely prioritize national interests, they should focus on preserving Asiana Airlines' competitiveness, including its slots and cargo operations, and consider selling to a third party rather than proceeding with a merger with Korean Air,” it urged.

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