Korean Air and Asiana Airline merger approved with terms by European Union

Tuesday, February 13, 2024

European Union approves Korean Air’s takeover of Asiana with conditions, ensuring competition in air transport between Europe and South Korea remains fair.

The European Union’s executive body, the European Commission, has sanctioned the planned takeover of Asiana Airlines Inc. by Korean Air Lines Co., Ltd, contingent upon strict adherence to the offered solutions.

This sanction comes after a thorough examination of the acquisition. Korean Air, the leading airline in South Korea, provides extensive international passenger and freight services. Asiana Airlines, ranking second in size within South Korea, offers comparable services. Both companies have substantial operations within the European Economic Area (EEA).

Examination by the Commission

In its detailed examination, the Commission collected a wide range of data and solicited opinions from industry participants and other interested parties.

The investigation revealed concerns that the original transaction proposal could negatively affect competition in the following areas:

• Freight transportation services between Europe and South Korea, and
• Passenger air services on specific routes from Seoul to several European cities, including Barcelona, Paris, Frankfurt, and Rome.

The investigation concluded that Korean Air and Asiana were direct competitors in both cargo and passenger services between the EEA and South Korea. Their merger would have significantly reduced competition, potentially leading to higher prices or reduced service quality for both cargo and passenger customers. The presence of regulatory and other barriers means other competitors are less likely to provide effective competition to the merged entity.

Solutions Proposed

To alleviate these concerns, Korean Air proposed several remedies:

• For cargo: The sale of Asiana’s worldwide freighter business, including its aircraft, slots, traffic rights, crew, and customer contracts, among other assets. The sale must be to a buyer approved by the Commission, capable of running the business competitively.
• For passengers: Provision of necessary assets to the airline T’Way to begin operations on the four contentious routes, including slots, traffic rights, and aircraft access. T’Way, based in Seoul, services routes across East Asia and beyond. Korean Air agreed not to finalize the merger until T’Way commences services on these routes.

These solutions satisfactorily addressed the Commission’s concerns. After reviewing feedback from customers and competitors about the proposed remedies, the Commission found they would maintain competitive cargo and passenger transport services between South Korea and the EEA.

Consequently, the Commission determined the adjusted transaction would not harm competition, with approval conditional on full compliance with these remedies. An independent trustee, under the Commission’s oversight, will ensure these conditions are met.

About the Companies

Korean Air, with headquarters in South Korea, operates both domestic and international passenger and cargo flights, centered around its main hub at Incheon airport in Seoul. It is a member of the SkyTeam alliance.

Asiana Airlines, also based in South Korea, provides similar services with its main hub at Incheon airport. It is part of the Star Alliance network.

Merger Control Rules and Process

The European Commission received notification of the merger on 13 January 2023 and initiated a detailed investigation on 17 February 2023. On 17 May 2023, the Commission voiced preliminary competition concerns to Korean Air.

The Commission’s responsibility is to assess mergers and acquisitions involving companies that exceed certain revenue thresholds, aiming to prevent any mergers that significantly reduce competition within the EEA or any substantial part of it.

Most mergers are approved after a standard review. Upon notification, the Commission generally decides within 25 working days whether to approve the transaction or to conduct a more comprehensive investigation.

Currently, three detailed merger investigations are in progress, involving partnerships between Orange and MasMovil, Lufthansa’s potential acquisition of ITA Airways, and IAG’s proposed purchase of Air Europa.

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