(News Focus) Korean Air, Asiana one step away from forming mega-carrier after EU’s merger nod

SEOUL, Korean Air Co. and Asiana Airlines Inc. have now entered the final stretch of sealing their proposed merger after winning approval by the European Union of the consolidation of South Korea's two full-service carriers. The conclusion as to whether the companies can ultimately merge themselves into a single mega-carrier is expected to be reached later this year, following a review by the United States antitrust regulator, the final regulatory step required in closing the deal. The European Commission (EC), the executive body of the EU, announced Tuesday that it decided to give a conditional nod to the 1.8 trillion-won (US$1.4 billion) merger deal that was announced in 2020, after reviewing the merger plan submitted by the airlines. The EC looked into the case amid concerns that the merger may restrict competition in the markets for passenger and cargo air transport services between the EU and South Korea. A rejection by the EC would have put a virtual end to the merger endeavor. Including the EU dec ision, the companies have so far won approval from 13 countries and territories. In a bid to win the EC's approval, the companies decided to sell Asiana's cargo business and divest passenger flight routes to four European cities and reported the remedial measures to the commission in November. According to the 2019 World Air Transport Statistics by the International Air Transport Association (IATA), Korean Air and Asiana Airlines ranked 28th and 42nd in RPK, or revenue passenger kilometers, a key industry metric in measuring air traffic. When combined, their accumulative RPK volume overcomes Chile's Latam Airlines, which ranked 15th in the world as of 2019. In terms of international flights of the two companies, their combined RPK falls slightly short of American Airlines, which ranks 10th. According to IATA, Korean Air ranked sixth and Asiana Airlines 25th in terms of cargo transport performance as of 2019. Even if Asiana sells its cargo business division, industry observers expect their combined cargo operations to rank in the global top 10. Through the merger, Korean Air could enhance its influence in the global market by attracting more transfer passengers to Incheon International Airport, South Korea's main gateway located west of Seoul. As of last month, passenger occupancy rates of Korean Air and Asiana Airlines at Incheon International Airport stood at 22.6 percent and 13.3 percent, respectively. Global mega-carriers, such as Delta, Air France and Lufthansa, occupy more than 50 percent of the passenger operations at their respective home airports and are expanding their market presence by attracting transfer passengers. Additionally, the consolidation of aircraft maintenance, repair and overhaul (MRO) systems of the two carriers is expected to reduce costs and enhance safety. Korean Air, however, will have to take over Asiana Airlines' debt as part of the corporate merger. As of the third quarter of last year, Asiana Airlines' consolidated total debt amounted to 12.65 trillion won. The company will also have to confront the concerns of Asiana workers who are apprehensive about changes in wages and working conditions under a consolidated company. While observers largely expect the remaining merger review by U.S. authorities to proceed relatively smoothly, Washington could also demand stringent conditions, providing an even tougher regulatory hurdle for the airlines. U.S. news outlet Politico reported in May of last year that the U.S. Department of Justice is considering suing to block the deal due to competition reasons. Additionally, convincing major U.S. airlines, such as United Airlines, which has expressed opposition, also remains a challenge for the South Korean airlines in the merger endeavor. Source: Yonhap News Agency

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