Korean Air-Asiana merger hits roadblock in US, Europe

The proposed merger between South Korea’s two largest airlines hit a roadblock in the West as a media outlet reported that the US government is considering a lawsuit to obstruct the move and the European antitrust body issued preliminary objections to the deal set to create the world’s No. 7 carrier.

The Department of Justice is considering a suit to thwart Korean Air’s planned acquisition of Asiana Airlines Inc., fearing it might harm competition on passenger and cargo traffic between South Korea and the US, Politico said, citing three people with knowledge of the deliberations.

The Biden administration is concerned that the merger would place too much control in cargo transportation of key goods like microchips in the hands of one company, which could harm supply chain resiliency, one of the people was quoted as saying.

“Though the United States does not have jurisdiction over the companies’ conduct inside South Korea, where both airlines are based, it can still seek to block the merger on the basis of harming competition in the US,” Politico said.

No decision has been made on whether to bring a case, and nothing is imminent, while the DOJ could ultimately not take any action, the media reported.

If the department sues, it would be the first time the US has sought to foil a merger between foreign airlines, a prospect that could tee up legal hurdles around how courts weigh in on foreign government decisions, Politico said.

NO LAWSUIT DECIDED

The DOJ, which is the US antitrust authority, has been investigating the proposed 1.8 trillion won ($1.4 billion) takeover announced in November 2020 for about two years with concerns that the deal will implicate competition on overlapping routes to the US, according to the report.

Korean Air Lines Co. played down the report, saying “no lawsuit has been decided and a US media outlet just raised the possibility of a lawsuit.”

“The DOJ officially told us at a face-to-face meeting on May 12 that it has not made a final decision and a timeline but will continue to discuss it with us,” said an official of South Korea’s top carrier in Seoul on Friday.

Korean Air plans to do its utmost to win approval by appealing that the competition in the major routes such as Los Angeles, New York and San Francisco can be restored by the services of new airlines and more flights, according to the official.

The deal is under investigation by the US, European Union and Japan’s antitrust bodies, although more than a dozen countries including South Korea, China, Australia, Singapore, Thailand and Vietnam have already given their nods.

PRELIMINARY OBJECTIONS

The European antitrust regulator on Wednesday said it has sent Korean Air a statement of objections over the deal.

“The European Commission has informed Korean Air of its preliminary view that its proposed acquisition of Asiana may restrict competition in the markets for passenger and cargo air transport services between the European Economic Area (‘EEA') and South Korea,” said the commission in a statement.

The acquisition may reduce competition in the provision of passenger transport services on four routes between South Korea and France, Germany, Italy and Spain while hurting competition in the provision of cargo transport services between the Asian country and all of Europe, the watchdog said.

Korean Air said it will actively discuss corrective measures to secure the final approval as the company still has the opportunity to reply to the preliminary opinion.

The commission, which in February launched a full-scale probe on the proposed takeover, is scheduled to make a final decision by Aug. 3.

Korean Air and Asiana dominated key routes between South Korea and major European cities, making up 100% of flights between Incheon International Airport, the country’s main gateway, and Barcelona, 75% of the routes to and from Rome, 68% of services for Frankfurt and 60% of flights to and from Paris as of 2019 before COVID-19 broke out.

Write to In-Yeop Kim at inside@hankyung.com
 
Jongwoo Cheon edited this article.