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| Korean Air B787-10 / Courtesy of Korean Air |
By Kim Hyun-bin
The melding of the country's two leading full-service carriers (FSC) is expected to create up to 400 billion won ($354 million) a year in synergy. Korean Air, the country's leading airline, plans to take over Asiana Airlines after two years of preparation, while three low-cost carriers (LCC) ― Jin Air, Air Busan and Air Seoul ― run by the two airlines, are also being considered for acquisition to enhance efficiency and market share.
"Once the anti-trust authorities give their approval, we will immediately position Asiana as an affiliate of Korean Air for around two years until we finish all procedures for a takeover," Korean Air President Woo Kee-hong said during a press conference, Wednesday.
Once the global aviation market recovers from the COVID-19 crisis, the company believes the move will create up to 400 billion won in yearly synergy effect. However, substantial costs will be incurred in the preparation. Industry insiders believe it will take the company two years to see substantial profitability.
"More efficiency in overlapping routes, strengthened connecting flights and increased joint venture effects could boost profitability," Woo said. "By utilizing the facilities, personnel, terminal, sales organizations and other sectors could create economies of scale and enhance productivity and improve the financial structure, which could lead to a better credit rating and reduced financial costs."
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| Korean Air President Woo Kee-hong |
The possible acquisition of the three LCCs will place them ahead of top budget carrier Jeju Air. Two proposals are under consideration, turning the LCC into an affiliate of Korean Air or parent company Hanjin KAL, while most systems will be integrated to enhance efficiency.
Woo said the company submitted documentation of its plans to Korea Development Bank (KDB) on March 17 for both FSC and LCCs.
Industry insiders say the delay comes as Korean Air struggles to obtain approval from eight antitrust authorities in countries serviced by the carrier.
The documents were submitted in January, but only Turkey has approved the deal so far, while seven other countries, including Korea, the United States, China, Japan, Vietnam, Taiwan and Thailand have not yet given their approval.
A minimum of four approvals are needed, excluding the host country, for the plans to progress. If Korean Air fails to win approval, it could be banned from operating in countries that disapproved the deal.
Once given the green light, Asiana Airlines will become an affiliate of Korean Air.
"For the Korean Air and Asiana Airlines plan to proceed, dozens of measures need to be dealt with, including the establishment of a joint safety operations system, combined IT system, corporate structure, and accounting system, as well as combining frequent fliers and resolving global alliance issues," Woo said. "It is expected to take around two years of preparations after Asiana becomes an affiliate of Korean Air."
