[In-Depth Review] South Korea's Aviation Industry, Only One Team Can Survive

The Fair Trade Commission submitted a review report on the corporate merger between Korean Air and Asiana Airlines, containing the details of conditional approval, on December 29 last year. It is expected that the plenary meeting on the same day will reach a final conclusion of conditional approval with restrictions on slots and traffic rights. The Fair Trade Commission’s criteria for conditional approval include the return of domestic and international airport slots, redistribution of traffic rights for non-liberalized air routes, restrictions on fare increases, and prohibition of supply reduction. Korean Air submitted its opinion on these matters to the Fair Trade Commission on the 21st of last month.

Industry insiders believe that the opinion likely contains difficulties in accepting some detailed conditions, and it is anticipated that conditional approval will be granted after adjustments to the detailed conditions at the plenary meeting. This decision comes 14 months after the government and creditors announced their intention to strengthen the competitiveness of Korea’s aviation industry through the merger of Korean Air and Asiana Airlines. Although the decision is somewhat delayed, this integration is expected to serve as a starting point for the restructuring of Korea’s aviation industry and provide an opportunity for national airlines to enhance their competitiveness on the international stage. Furthermore, as Korea’s corporate merger review is entering its final stage, the Ministry of Land, Infrastructure and Transport (policy authority), the Fair Trade Commission (competition authority), the Korea Development Bank (financial authority), and the airlines (industry) must unite to secure overseas regulatory approvals and complete the mission of restructuring the aviation industry.

In particular, the recent acquisition of Daewoo Shipbuilding & Marine Engineering by Hyundai Heavy Industries was blocked by the European Union (EU) competition authorities, and the merger between Taiwan’s semiconductor wafer manufacturer GlobalWafers and Germany’s Siltronic was also blocked by German authorities. These cases reflect the intensifying nationalism in global mergers. Therefore, the Ministry of Land, Infrastructure and Transport and the Fair Trade Commission should not be swayed by the voices of foreign competition authorities representing their own countries but must represent Korea’s aviation industry.

Korea has already experienced the devastating impact of the collapse of the shipping industry due to the government’s inadequate response in 2016, which showed how severely the collapse of a key national industry can affect the country. Learning from that experience, thorough measures must be taken to prevent a second shipping crisis.

Korea’s aviation industry, including related industries, accounts for about 3.4% of the country’s gross domestic product (GDP) (54 trillion won) and creates approximately 840,000 jobs, making it a core national key industry. If Korea’s air transportation competitiveness is lost due to the logic of great powers’ nationalism, as seen in the failed shipbuilding merger cases, it will lead to employment instability, weakening of Incheon Airport’s hub competitiveness, and the collapse of upstream and downstream related industries, causing significant adverse effects on the national economy and consumer welfare.

This merger is not only about survival in the COVID-19 environment but will serve as a litmus test for the sustainable growth of Korea’s aviation industry in the post-COVID global aviation market. Learning from the failure of the shipbuilding industry’s mergers and acquisitions, a nationwide effort must be made.

There is a four-character idiom, ‘Buwijeonggyeong (扶危定傾),’ meaning to correct mistakes and set right what is tilting in times of crisis. Although airlines worldwide are facing a crisis worrying about survival due to the impact of COVID-19, this crisis should be turned into an opportunity for restructuring the aviation industry through the merger of the two major national carriers and serve as a springboard to strengthen the competitiveness of Korea’s aviation industry. To this end, all stakeholders mentioned earlier?the Fair Trade Commission, the Ministry of Land, Infrastructure and Transport, the Korea Development Bank, and the airlines?must fulfill their roles with a sense of mission as one team to reach the best possible conclusion. We look forward to the excellent cooperation of ‘Team Korea’ until the final hurdle is overcome.

Hwang Yong-sik, Professor, Department of Business Administration, Sejong University