Korean Air-Asiana, Corporate Merger Faces Uncertainty for Year-End Goal

Some Overseas Competition Authorities Express "Concerns Over Competition Restrictions"

Photo by Hyunmin Kim kimhyun81@

[Asia Economy Reporter Dongwoo Lee] As the issue of whether the merger between Korean Air and Asiana Airlines restricts competition has emerged as a key concern, there are prospects that the merger may be difficult to complete within this year if this issue is not resolved promptly.

According to the aviation industry on the 3rd, Korean Air recently announced that it will extend the deadline for acquiring Asiana Airlines' shares by three months due to delays in filing the merger notification and failure to meet transaction preconditions.

Previously, Korean Air planned to participate in Asiana Airlines' paid-in capital increase worth 1.5 trillion won by June 30 after passing merger reviews in major countries, thereby acquiring a 63.9% stake. The company extended the acquisition deadline by three months to September 30 and has now postponed it again to December 31.

Korean Air explained, "The scheduled date was calculated based on the day when domestic and international merger approvals from our company and the issuing company, including government approvals, are completed, and it may be delayed from the initially scheduled date depending on circumstances."

The delay in the merger between the two companies is due to some overseas competition authorities expressing concerns about "restrictions on competition" regarding overlapping routes of Korean Air and Asiana Airlines. There are 67 overlapping international routes between the two airlines, and if they merge, their market share would be higher than that of other foreign airlines.

The Korea Fair Trade Commission (KFTC) has stated its intention to complete the merger review within this year, but since approvals from all overseas competition authorities currently reviewing the case, such as the United States and the European Union (EU), are required, the industry expects that the KFTC will also find it difficult to make a proactive decision.

In response, financial authorities have expressed the view that the KFTC should take a more active stance. Last month, Lee Dong-geol, Chairman of KDB Industrial Bank, publicly said, "From an industrial perspective and considering the ripple effects caused by the elimination of insolvent companies, it is necessary to take a somewhat progressive view," adding, "It would be good if our competition authorities take the lead."

As the merger process is delayed, the financial condition is also deteriorating. Asiana Airlines' current liabilities due within one year as of the first half of this year exceed 5 trillion won, and its debt ratio reaches 2016%. There are concerns that the management structure could worsen further as the merger process is delayed.

Korean Air has filed merger notifications with competition authorities in nine essential countries, and as of this month, it has only passed merger reviews in Turkey, Thailand, and Taiwan. The remaining six countries are the KFTC, the United States, China, Europe, Japan, and Vietnam.