Korean Air fast-tracks European approval as Asiana drops cargo business

[Photo by Yonhap]

Korean Air Lines Co. cleared a major hurdle for its acquisition of Asiana Airlines Inc., after Asiana approved the proposal to separate and sell its cargo business during its board meeting on Thursday.

According to Korean Air on Thursday, the air carrier submitted the final remedial plan to the European Commission (EC) that afternoon, just after Asiana’s decision. “We will seek EC approval as promptly as possible and expedite the process to obtain approval from U.S. and Japanese authorities,” the company said.

The remedial plan submitted by Korean Air to the EC includes transferring four duplicate routes in Europe, including Paris, Frankfurt, Rome, and Barcelona, to other domestic airlines and separating and selling Asiana’s cargo business. The EC is expected to decide on conditional approval by the end of January 2024, and the final approval is anticipated to take about a year.

Alongside EC approval, the air carrier is also seeking approvals from authorities in Japan and the United States. Korean Air plans to submit a formal application in Japan, with the goal of concluding the review in early 2024 and is reportedly in discussions with the U.S. Department of Justice regarding remedial actions.

Previously, Korean Air announced a financial support plan of 1 trillion won ($750 million) for Asiana Airlines at the end of October 2023, with 700 billion won to be provided in the form of a deposit and installment payments. It will also acquire 300 billion won worth of new convertible bonds issued by Asiana Airlines. Out of the 300 billion won previously paid as part of a deposit following an EC approval, 150 billion won would be converted into a performance guarantee. Asiana is not obligated to repay this amount even if the merger is not ultimately approved.

“To resolve the uncertainties surrounding the acquisition, we will establish a permanent joint committee between the two companies and strengthen discussions for the conclusion of the transaction,” according to Korean Air. The carrier also announced a plan to change the deadline for the final share acquisition transaction to December 20, 2024, right after EC’s conditional approval.

Meanwhile, Asiana faces turmoil after the board’s decision to sell the cargo business, which was opposed by some board members and employees. Expressing concerns about “declining competitiveness and value for Asiana Airlines” following the decision, Asiana’s general labor union raised job insecurity for employees. The Asiana board meeting on Thursday had one inside director and four outside directors in attendance, with only four having voted.

To soothe any potential disruption, Korean Air highlighted that the sale of the cargo business will proceed on the condition of handing over and maintaining the workforce in its entirety. “We will seek a practical solution that ensures sufficient understanding and cooperation from the affected employees and enables a smooth agreement.”

Korea Development Bank (KDB), which is seeking to sell Asiana Airlines, stated that the bank will respect Asiana board’s decision, and added that it will “actively support both parties for a prompt conclusion of the merger review.”

Market insiders see the decision to sell the cargo business division as just one of the many steps towards receiving conditional approval from the European authority. “Although we crossed a major hurdle, there is still a long road ahead of us,” a KDB official said.

Approval from European authorities will depend on both parties’ efforts. There are concerns reported about whether smaller domestic airlines, which will take over some of the proposed European routes, have the necessary operating capacity, which is now a significant factor to consider for relevant parties seeking approval for the merger.