“Korean Air and Asiana Merger Facing Hurdles from EU and US: Potential Consequences if the Merger Fails”

[시사저널e=엄민우 기자] Over the past two days, not-so-positive news about the merger between Korean Air and Asiana has been conveyed one after another. First of all, on the 17th (local time), the European Union (EU) issued an interim review report stating that the merger of the two companies could reduce competition in passenger transport services on four routes between France, Germany, Italy and Spain. . Then, on the 18th (local time), the US Internet media Politico reported that the US Department of Justice is considering filing a lawsuit to block the merger of the two companies. However, the case related to the US Department of Justice lawsuit is only reported by the media, and it is not yet established.

In any case, in the aviation industry, there are two major concerns about the unwelcome situation coming from the EU and the United States.

First of all, it is the aftermath of the ‘worst case’, when the merger is canceled. From the perspective of Korean Air, the input cost for the acquisition can eventually become a sunk cost. In particular, in the case of Asiana Airlines, it is said that there is a possibility of going through bone-cutting restructuring to survive on its own. Losing the opportunity to have a world-class 7th global airline may be a pity at the national level.

Here, it seems likely that the theory of responsibility for the occurrence of this situation will be highlighted as a new issue. This is not a very welcome situation for the industry as a whole.

Another point of concern is when a merger takes place but additional merger conditions are added. From a different perspective, the combination approval conditions can also be called ‘synergy reduction’. Korean Air has already been given merger conditions that reduce synergies by half, such as returning slots and reducing operations, during the Fair Trade Commission combined review process during the last administration.

In fact, the US and European routes have become more important, and if many conditions are attached to those routes, the possibility of a merger that is bigger than the belly cannot be ruled out.

In order to overcome this situation, it seems that diplomatic efforts at the government level are also needed. Of course, in the case of diplomatic activities, there are more invisible parts, but if uncomfortable situations continue to arise in relation to business activities, even for the government’s active diplomatic activities that are currently shown, companies may question ‘what is the real benefit?’ no see.

Meanwhile, Hanwha’s recent merger with Daewoo Shipbuilding & Marine Engineering contrasts with the case of Korean Air’s Asiana merger. The US and EU, which are cautious about Korean Air, also quickly approved Hanwha’s merger with Daewoo Shipbuilding & Marine Engineering.