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| Passenger planes of Korean Air and Asiana Airlines are seen at Incheon International Airport, Dec. 1. Yonhap |
By Nam Hyun-woo
The looming merger between Korean Air and Asiana Airlines hinges on how the former will deal with their aviation services divisions, such as maintenance, repair and overhaul (MRO) and in-flight catering.
According to industry officials, Sunday, Hanjin Group, the parent of Korean Air, is now working on post-merger integration plans after Korean Air's acquisition of Asiana. Since the two full-service carriers have overlapping businesses across their portfolios, the plans are focusing on how the two companies can integrate efficiently after the merger, they said.
Over the two's low cost carrier (LCC) subsidiaries, Hanjin plans to run a separate company to control their LCCs including Jin Air, Air Busan and Air Seoul. Though the new company's establishment is subject to a monopoly review by the country's Fair Trade Commission, Korean Air has stated it believes it will not likely constitute a monopolistic status and thus the antitrust agency should take no issue with the integration.
Questions are on their aviation service divisions and subsidiaries.
When the two carriers finish their merger, Hanjin will have 315 aircraft under its control, which accounts for 76.5 percent of the 412 aircraft run by Korean carriers. This means the merged firm's MRO division should be capable of maintaining the increased number of airplanes.
Korean Air has been covering the majority of MRO demands within its capacity, but Asiana Airlines has been largely relying on overseas MRO companies with more than half of their heavy checks having been outsourced. Due to this structure, speculations have been growing that Korean Air may integrate the MRO divisions of the two companies and spin it off.
Korean Air on Dec. 23 said it will not spin off its MRO business because their current workforce can handle the increased demands post-merger, but calls are growing regarding the necessity of a separated MRO company in order to raise the country's competitiveness in the global aviation service industry.
Another question is on the two companies' in-flight meal businesses.
In August, Korean Air signed a deal to sell its in-flight catering and duty free businesses to Hahn & Co. for 990 billion won ($845 million). Korean Air will have a 20 percent stake in the new company.
For Korean Air, it will be more cost-efficient to have a single in-flight meal provider supplying both Korean Air and Asiana Airlines. However, Asiana's contract with its current supplier, Gate Gourmet Korea (GGK) carries through until 2048.
GGK was established as a joint venture between Asiana Airlines and Gate Gourmet of Switzerland. When Asiana Airlines is merged into Korean Air, the joint venture deal will likely trigger a put option for Singaporean private equity fund RRJ Capital, which purchased Gate Gourmet's stake in GGK.
Since this will come at a huge cost for Korean Air, scenarios are rising that Korean Air will pay a certain amount of compensation to RRJ Capital and persuade Hahn & Co. to purchase GGK.
Including these, Hanjin Group is set to submit its post-merger integration plans to the Korea Development Bank, which is the main creditor of Asiana Airlines. The group seeks to finish the M&A process by June next year.
