The Asiana Airlines board meeting scheduled for October 30 is poised to become a pivotal event in the merger between Korean Air and Asiana Airlines. (Image courtesy of Yonhap)
SEOUL, Oct. 23 (Korea Bizwire) – The Asiana Airlines board meeting scheduled for October 30 is poised to become a pivotal event in the merger between Korean Air and Asiana Airlines. If the proposal to sell Asiana Airlines’ cargo business in compliance with the European Union’s (EU) request is rejected, the merger between the two airlines, which has been in limbo for three years, may struggle to pass the rigorous scrutiny of EU competition authorities.
Even in the case of the merger between Korea Shipbuilding & Offshore Engineering (currently HD Korea Shipbuilding & Offshore Engineering) and Daewoo Shipbuilding & Marine Engineering (DSME), the EU thwarted the merger, citing monopoly and oligopoly concerns.
However, unlike DSME, which was eventually acquired by Hanwha with unwavering support from the Korea Development Bank (KDB) even after the merger fell apart, Asiana Airlines may face challenges even in a third-party sale if its merger with Korean Air fails, as the KDB has made it clear that no additional support will be provided.
The proposed merger between Korean Air and Asiana Airlines shares similarities with the merger between KSOE and DSME, which eventually ended in a failure in January 2022 due to EU intervention, in various aspects. DSME, now rebranded as Hanwha Ocean, emerged from court receivership in 2001 and was under KDB management. In the process of seeking a new owner, it was determined to merge with Korea Shipbuilding & Offshore Engineering in March 2019.
When Korea Shipbuilding & Offshore Engineering signed a principal contract with the KDB, it required the completion of a merger review by six countries or authorities, including the EU, as a precondition for acquisition. Subsequently, the merger between the two shipyards received unanimous approval from competition authorities in Kazakhstan, Singapore, and China. If it secured approval from the EU, there was a high likelihood that competition authorities in Korea and Japan would follow suit.
Nevertheless, the EU delayed the merger review three times, citing the outbreak of the COVID-19 pandemic, and eventually decided not to approve it in January 2022. Consequently, the merger fell apart, just two years and two months after the review was initiated. The EU cited concerns that the merger between the two shipyards could lead to a monopoly in the LNG carrier market and hinder market competition.
During the review period, the EU asked Korea Shipbuilding & Offshore Engineering to divest some of its LNG carrier business. In response, the shipyard proposed that it would not raise prices for the time being and transfer some newbuilding technology to small- and medium-sized shipyards in Europe. However, this proposal was not accepted.
The issue at hand is that the merger between Korean Air and Asiana Airlines appears to be following a similar path. If Asiana Airlines’ board decides to reject the idea of selling the cargo freight business, there’s a strong likelihood that obtaining EU approval will be challenging.
Ashley Song (ashley@koreabizwire.com)
