News / The Loadstar explains: How the EC approved the Korean Air-Asiana merger

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The European Commission’s decision to approve the merger of Korean Air and Asiana has taken years of deliberation and investigation to ensure fair competition, The Loadstar understands. 

There were two parts to the EC decision: one on the competitive impacts of the merger; and one on the remedy for that, and whether it would work.  

The case forced the EC to take something of a deep dive into air cargo, where it discovered that there was a “competition problem”.

But first it had to separate passenger and combination carriers from pure cargo carriers, and then the integrators.  

Initially, it looked as if there were a lot of competing carriers, both in passenger and cargo, suggesting there shouldn’t be a problem. But on closer inspection, the EC realised there weren’t enough strong operators between the EU and South Korea. 

The EC looked into two flights in particular, and started to find that options were limited – in part, because the capabilities of the carriers on the route were very different. Korean Air and Asiana, the EC found, had high frequencies and high quality; but the competitors were not as strong, giving KAL and Asiana the highest market share.  

In this case, there were also regulatory and traffic rights barriers which placed restrictions on the competitors. The EC needs alternatives to be viable to maintain competition. 

After determining competition – or lack thereof – on routes, the commission had two key requirements to ensure its approval: that a ‘remedy passenger carrier’ was stable enough to take on four European routes, to Barcelona, Frankfurt, Paris and Rome; and that the sale of Asiana’s freighter business was viable. 

For approval to be given, there had to be a viable passenger carrier to operate European routes, as well as an offer on the table for Asiana’s cargo business. After an offer, the EC then had to check the acquirer, to make sure it was sufficiently financially strong and able to take the business forward successfully. 

After some to-ing and fro-ing with various Korean low-cost carriers, Air Incheon had been finally nominated as the buyer of Asiana’s freighter business. But approval could not be given until the EC was certain that Air Incheon could offer competitive operations, and successfully take on Asiana’s freighter business operations.

And, as selling Asiana’s freight arm was a carve-out, it was even more complex – in particular because of dividing belly freight operations from freighter operations. 

Korean Air has designated T’way Air as the ‘passenger remedy carrier’ for the European routes, with commitments to provide operational support, including aircraft, flight crew and maintenance services.

Air Incheon has been approved as the purchaser of Asiana Airlines’ freighter business – Asiana has 13 ageing 747Fs in its fleet, according to Planespotters, the oldest of which is 33, while the youngest is 22. 

Korean Air said it expected to complete the transaction next month, having submitted the EC approval to the US Department of Justice.