Korean Air, De Facto Approval in UK... "Concerns Over Weakened Merger Synergy"

Slot numbers decrease... "Similar results may emerge in remaining countries"

[Asia Economy Reporter Hyunseok Yoo] Korean Air has virtually obtained approval for its corporate merger with Asiana Airlines in the UK, but it cannot fully celebrate. This is because it has agreed to transfer some slots (the number of possible aircraft takeoffs and landings per hour). Similar outcomes, such as slot provision, may arise in other countries where approval is still pending due to monopoly concerns. There are worries that the initially expected synergies may not be realized.

Korean Air announced on the 12th that it had virtually received merger approval with Asiana Airlines from the UK's Competition and Markets Authority (CMA), a voluntary notification country, on the 9th, and is currently undergoing merger reviews in mandatory notification countries including the United States, the European Union (EU), Japan, and China. The CMA accepted Korean Air's remedial proposal, which included the UK airline Virgin Atlantic's proposal to launch a new Incheon-London route. The final approval decision is expected by January 26 next year, or at the latest by March 23. The industry views this as the UK effectively approving the merger.

The CMA required Korean Air to provide up to seven slots per week at London Heathrow Airport to Virgin Atlantic after the merger. Currently, Korean Air and Asiana Airlines hold 10 and 7 slots respectively. If Virgin Atlantic utilizes all these slots post-merger, the total slots could decrease from 17 to 10.

The industry anticipates that similar decisions may follow in other countries. Earlier, on November 14, during the interim review, the CMA demanded that Korean Air and Asiana Airlines submit measures to resolve monopolistic concerns, citing expected increases in airfare and declines in service quality due to the merger. In response, Korean Air submitted additional remedial measures to address the UK's concerns.

Since the CMA has effectively approved the merger contingent on Korean Air providing slots, similar outcomes are expected in other countries. In February, the Korea Fair Trade Commission conditionally approved the merger of Korean Air and Asiana Airlines. At that time, the commission identified competition restrictions on routes to the Americas, Europe, China, and Japan. In the Americas, this includes New York, Los Angeles, Seattle, San Francisco, and Honolulu. In Europe, it includes the UK (London), Spain (Barcelona), Germany (Frankfurt), France (Paris), and T?rkiye (Istanbul). Since domestic low-cost carriers (LCCs) were already planning to enter the Chinese and Japanese markets, concerns are focused on weakened competitiveness in the Americas and Europe.

An aviation industry official said, "Situations like slot concessions in the UK could also occur in other countries. Additionally, Korean Air belongs to the SkyTeam alliance, and Asiana Airlines is part of Star Alliance; since they were competitors, the outcome remains uncertain."

Particularly concerning is the delay in the merger between Korean Air and Asiana Airlines, which is postponing the necessary capital injection. Asiana Airlines is in a difficult situation. As of the third quarter, on a consolidated basis including Air Busan and Air Seoul, Asiana Airlines has a capital erosion ratio of 57.3% and a debt ratio of 10,298%. To overcome this, large-scale capital increases and other financing measures are required. Korean Air is preparing a capital increase worth 1.5 trillion KRW for Asiana Airlines, but support can only proceed once the merger is approved. However, as the approval process is prolonged, the capital increase is expected to take place only next year.