The finish line is in sight for Korean Air’s Asiana acquisition
Korean Air appears close to finally gaining all the clearances it needs for its takeover of Asiana Airlines, which would signal the end of a four-year journey through a regulatory maze involving multiple jurisdictions.
Competition authorities in several countries have weighed in on the effects of the merger in their markets, and in many cases they have raised concerns.
Korean Air has patiently worked its way through these processes, agreeing to the concessions needed to address any objections.
The regulatory scrutiny took much longer than expected, but the process is now essentially finished, prompting Korean Air to set a date for closing the acquisition.
While this would mark the end of one phase, it also represents the start of the lengthy and complex task of merging the two airlines' fleets and operations.
- Korean Air is aiming to complete the Asiana acquisition on 11-Dec-2024.
- An absence of objections from the US DOJ will essentially clear the deal.
- Asiana will remain as a subsidiary of Korean for approximately two years.
- Korean Air/Asiana would have a 35.5% share of international capacity in South Korea.
- Merger would lift the combined airlines to the 11th largest international airline.
The European and US reviews were the last hurdles for Korean Air-Asiana deal
Gaining approval from the European Commission on 28-Nov-2024 was a major step for Korean Air.
The final stage is clearance from the US Department of Justice (DOJ), and it is likely that its review of the deal has either already been concluded, or will be very soon.
The latest update from Korean Air is that it expects to complete its acquisition of Asiana shares on 11-Dec-2024, if no objections from the DOJ arise before that.
This signals the airline's confidence that the US will effectively clear the deal and offer no such objections - formal approval is not required.
While the US clearance is significant, just because it took the longest does not necessarily make it the most important.
Approvals in markets such as the EU, Japan and China were just as crucial to Korean Air. So the US review is one of many pieces that had to fall into place.
Takeover by Korean Air was spurred by Asiana's shaky survival prospects
The takeover saga began in Nov-2020, when Korean Air announced its plan to acquire the financially troubled Asiana. The government supported this move, as it was seen as the best way to guarantee jobs and capacity at Asiana.
The Korean Air takeover proposal emerged after an earlier deal fell through. The previous owner Kumho had reached a deal to sell Asiana to Hyundai Development Co., but this deal collapsed as the airline industry entered crisis mode in 2020.
Asiana's financials appear much healthier now, but the airline is being boosted by the same favourable demand conditions that are lifting most others in the industry.
When the business cycle inevitably turns again, Asiana could have found itself in the same precarious position, absent the merger.
An important point is that Asiana will not disappear immediately after the acquisition is completed next week - Korean Air has said that Asiana will be operated as a subsidiary of Korean Air for approximately two years, after which it will be fully absorbed under the Korean Air brand.
Extensive concessions have been made to remedy competition concerns from overseas authorities
Regulators have exacted a fairly high price for their approval of the acquisition.
Korean Air has agreed to measures such as slot concessions, and support for other airlines to start service on certain routes that were of most concern.
Two of the major beneficiaries will be South Korean airlines T'Way Air and Air Premia. Korean Air is leasing Airbus A330s to the LCC T'Way to allow it to launch services on routes to Europe.
Air Premia will be the "remedy carrier" in the US market: this means that Korean Air will lease Boeing 787s to Air Premia to boost its US services.
This is something of a windfall for the two smaller airlines. They are able to start service on potentially lucrative long haul routes with support, rather than opposition, from two of the incumbent major airlines.
Perhaps the biggest concession was Korean Air's commitment to sell off the Asiana freighter operation. Air Incheon was the successful bidder, and this outcome has been approved by the EC.
Korean Air will have a much stronger competitive position versus other major global airlines
Despite these concessions, the deal is still very positive for Korean Air.
It will dramatically increase its footprint in the international arena, and in important markets. The Seoul hub will be boosted as one of the region's major connecting points.
Data from CAPA - Centre for Aviation and OAG shows that Korean Air currently has a 21.2% share of the South Korean international market, as measured in seats for the week of 2-Dec-2024.
Combined with Asiana it would have a 35.5% share. Including LCC subsidiaries would raise the share to around 47%.
South Korean international capacity share, as measured in seats for the week of 2-Dec-2024
Korean Air currently ranks 22nd on the global list of airlines ranked by international weekly seats, and Asiana 40th. Combined, they would be 11th on the list - ranking higher than any other Asia Pacific airline.
The acquisition will also have ramifications in the LCC market. Korean Air plans to merge Asiana's LCC subsidiaries Air Busan and Air Seoul into its existing LCC Jin Air.
Together, they would have the largest capacity share of approximately 30% of South Korea's international LCC seats.