Korean Air has delayed its merger with Asiana Airlines until 2024, according to a post-merger integration (PMI) plan submitted to Korea Development Bank (KDB). The airline still plans to purchase Asiana Airlines in 2022, but the two airlines will not be fully integrated until 2024. The delay is said to be related to issues acquiring antitrust approval from several authorities worldwide.
An integrated Korean airline by 2024
Korean Air’s PMI plan has revealed its vision for a single, integrated Korean airline by 2024. The airline is set to acquire Asiana Airlines by the end of 2022, but the two carriers will still operate as separate entities for two years before a merger in 2024. Korean Air originally planned to acquire Asiana by June 30th, 2021 but has delayed the acquisition process until next year.
Once Korean Air has acquired Asiana Airlines, it plans to make the smaller carrier a subsidiary before a complete merger. Korean Air is itself a subsidiary of holding company Hanjin KAL. This would make Asiana Airlines a sub-subsidiary, and its own subsidiaries, including Air Busan (44.2%), Air Seoul (100%) and Asiana Sabre (80%), will become ‘sub-sub-subsidiaries’ of Hanjin KAL.
According to Korean law, a holding company’s sub-subsidiaries must have a 100% controlling stake in their own subsidiaries. Otherwise, they are forced to sell their stakes within two years of acquisition by a holding firm. However, if Asiana Airlines is fully integrated into Korean Air, it will be exempt from this rule.
Over the two-year transition to full integration, staffing, business operations and routes will be evaluated to maximize efficiency. Earlier in March, Korean Air raised 3.3 trillion won ($2.92 billion) by issuing new shares, which will go towards financing the 1.5 trillion won ($1.35 billion) Asiana deal. Part of the deal will also involve $730 million funding from state lender KDB.
Waiting for approval from antitrust authorities
Factoring into the delays are potential antitrust issues. Korean Air’s 63.9% stake in Asiana is undergoing review with antitrust authorities from eight different countries. Only one of those countries, Turkey, has so far granted approval, but others, including Korea, the European Union, the U.S, and China, are yet to disclose their decisions.
For the merger to go ahead, Korean Air will need approval from a minimum of four antitrust authorities, excluding the host country. If the carrier fails to receive sufficient approval, it could be banned from flying in certain countries. The merger threatens to disrupt Star Alliance codesharing on several US routes, which US antitrust authorities may factor into their decision.
Korean Air relying on international travel
With international travel operating at just a fraction of its usual levels, Korean Air has been hit particularly badly due to its reliance on international routes. While many airlines globally have been able to bank on domestic aviation as a revenue source, Korea’s relatively small domestic market has brought little joy for Korean airlines.
Hurr Hee-young, a professor at Korea Aerospace University, told the Korean Herald,
“Unlike countries like China, the US or Japan, South Korea’s domestic aviation market accounts for less than 10 percent of major airlines’ revenue, and international travel must be resumed to keep the industry afloat in Korea’s case… Korea’s aviation industry might continue to struggle longer while other countries are recovering, given the situation.”
Do you think it’s a good idea to integrate the two carriers into a single brand? Let us know your insights in the comments.