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Asiana acquisition by Korean Air, approved by EU Commission

The European Commission has approved, under the EU Merger Regulation, the proposed acquisition of Asiana Airlines Inc. (‘Asiana’) by Korean Air Lines Co., Ltd (‘Korean Air’). The approval is conditional upon full compliance with the remedies offered by Korean Air.

Under supervision of the Commission, an independent trustee will monitor the implementation of the remedies propposed by Korean Air.

Asiana accepted Korean Air’ offer to purchase the airline for $1.35Bn in late 2020, when the company was experiencing some financial troubles due to the COVID-19 pandemic.
Korean Air plans now to accelerate discussions with the U.S. competition authorities starting with the approval of the EU competition authorities and eyeing to complete the business combination review process as soon as possible.

Till now Korean Air has reported the merger plan for the acquisition and integration of Asiana Airlines to a total of 14 competition authorities after january 14th 2021. Besides the EU Commission other twelve competition authorities (Turkey, Taiwan, Thailand, The Philippines,Malaysia, Vietnam,Korea,Singapore, Australia, China, UK and Japan) , either have approved the merger operation or terminated the review on the grounds that it was not subject to review and reporting.

Korean Air is South Korea’s largest airline offering international air passenger and cargo services. Asiana, is the second largest airline in South Korea, provides similar services. Both airlines have a significant presence in the European Economic Area (‘EEA’).

Korean Air, headquartered in South Korea, is a full-service carrier with domestic and international operations in passenger and cargo air transport. It operates a hub-and-spoke network with its principal hub at Incheon airport in Seoul. Korean Air is a member of the SkyTeam alliance.

Asiana, headquartered in South Korea, is a full-service carrier with domestic and international operations in passenger and cargo air transport. It has its principal hub at Incheon airport in Seoul. Asiana is a member of the Star Alliance.

“The airline industry is crucial for connectivity and has a significant place in the economy of our Member States. This merger raised significant competition concerns in both cargo and passenger air transport services. However, Korean Air committed to the divestment of Asiana’s global cargo freighter business to a suitable purchaser; and to the divestment of assets to facilitate the entry of rival airline T’Way on key passenger routes. These remedies effectively address our concerns, and will ensure fair competition and consumer choice in this vital sector, ” Margrethe Vestager (Executive Vice-President in charge of competition policy) explained.

There are currently other two ongoing Phase II merger investigations by the EU Commission: The proposed purchase of ITA by Lufthansa and the proposed acquisition of Air Europa by IAG.

EU Commission’s concerns on the operation

The Commission found that Korean Air and Asiana compete head-to-head in carrying cargo and passengers between the EEA and South Korea. Together, they would have been by far the largest carrier on these routes removing an important alternative for customers. Other competitors face regulatory and other barriers to expand their services and would have been unlikely to exert sufficient competitive pressure on the merged company. This would likely have led to increased prices or decreased quality for passengers and cargo customers.

The Commission had concerns that the transaction, as initially notified, would harm competition in the markets for:

1.- Air cargo transport services between Europe and South Korea, and

2.- Passenger air transport services on routes between Seoul and certain European destinations, specifically Barcelona, Paris, Frankfurt, and Rome.

The remedies proposed by Korean Air

To address the Commission’s competition concerns, Korean Air offered the following remedies:

1.- Cargo commitments: Korean Air will divest Asiana’s global cargo freighter business. The divestment includes freighter aircraft, slots, traffic rights, flight crew, and other employees, as well as customer cargo contracts, among others.

Korean Air can only implement the acquisition of Asiana following the Commission’s approval of a suitable buyer for the cargo divestment.
Among other requirements, the buyer must be able and have the incentives to operate the divested business in a viable manner and to compete effectively with the merged company.

2.- Passenger commitments: Korean Air will make available to rival airline T’Way Air the necessary assets to enable it to start flight operations on the four overlap routes.
The assets include slots and traffic rights as well as access to the required aircraft.

T’Way is a South Korean airline with a hub in Seoul from where it operates a network of routes in East Asia and beyond. Korean Air has committed not to complete the merger until T’Way has started operating on the four overlap routes.

Image over the headline.- Asiana Airlines Boeing 747-48E at Incheon Airport. Image by byeangel through Wikimedia Commons. To watch the original image and read the terms of the lisense, click here

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