Korean Air delays merger of Asiana to 2024

Korean Air Boeing 787-9 / Courtesy of Korean Air

By Kim Hyun-bin

Korean Air, the country's leading full-service carrier (FSC), has delayed its purchase of Asiana Airlines to 2024, a move which will make Korean Air become the world's seventh-largest airline. However, there are several obstacles in the way, including monopolization issues and the future operations of low-cost carriers (LCC) ― Jin Air, Air Busan and Air Seoul ― the two large airlines currently operate.

According to ruling Democratic Party of Korea (DPK) Rep. Park Yong-jin's office, Korean Air submitted a post-merger integration (PMI) plan to Korea Development Bank (KDB), proposing to acquire Asiana by 2022 and fully merge by 2024.

Korean Air initially planned to complete the merger by next year after injecting 1.5 trillion won into Asiana Airlines in late June to acquire a 63.7 percent stake.

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 given their approval.

A minimum of four approvals are needed, excluding the host country, for the merger to take place. If Korean Air fails to win approval, it could be banned from operating in countries that disapproved the deal.

Major airlines and carriers are wary of the Korean Air deal, since it will form the world's seventh-largest carrier, which will further increase competition in an already saturated market.

Korea and the U.S. are bound by the "Open Skies Treaty" which lets airlines from both countries choose the frequency of flights, routes and types of aircraft to use. But many U.S. routes are expected to undergo inevitable changes as Asiana Airlines is under the Star Alliance jointly operating the Incheon―San Francisco route with United Airlines (UA) and code sharing on the New York, Los Angeles, Seattle routes.

Asiana Airlines Airbus 380 / Courtesy of Asiana Airlines

If the deal goes through and Asiana will become part of Korean Air and the SkyTeam alliance, which will prevent partnerships with UA on several U.S. routes. There is a high possibility that U.S. antitrust authorities will take UA's situation into consideration.

"Currently most of the routes Korean Air and Asiana operate in the same destination are in close proximity with some departures just 10 minutes apart. Once the merger occurs, the time slots will most likely be changed further apart to better maximize profitability and provide customers with more options," an industry official said.

However, there are countries that have not inked an Open Skies Treaty with Korea, such as Japan, China and European countries. The respective countries will likely request additional measures against the merger to better protect their local airlines. Some industry insiders believe the countries could invalidate Asiana Airlines time slots after it is integrated into Korean Air.

The Ministry of Land, Infrastructure and Transport estimates 32 routes that Korean Air obtains from Asiana through the merger will lead to a combined market share of more than 50 percent.

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