EU Antitrust Approval Likely on the Horizon for Korean Air-Asiana Merger, Insiders Report

In a move that highlights the continuing consolidation trend in the airline industry, Korean Air is reportedly on the verge of obtaining European Union (EU) antitrust approval for its acquisition of Asiana Airlines. This comes after Korean Air and Asiana Airlines agreed to sell Asiana's cargo unit and divest routes to four European cities, according to sources with direct knowledge of the situation.

Korean Air, South Korea's largest carrier, announced plans in late 2020 to invest 1.8 trillion won ($1.37 billion) to become the top shareholder of debt-laden Asiana. The proposed sale of the cargo business marks a notable departure from the typical airline remedies of airport slots and access to frequent flyer programmes.

In a twist, South Korean budget airline T'way Air is expected to acquire Asiana's cargo business. This follows indications from EU competition officials that they would prefer a buyer from Asia, ideally a Korean competitor. The passenger routes to be divested include those to Barcelona, Frankfurt, Paris, and Rome.

This Korean deal mirrors similar moves in the industry, such as Lufthansa's pursuit of a 41% stake in Italy's ITA Airways and IAG, owner of British Airways and Iberia, aiming to acquire the remaining 80% of Spanish carrier Air Europa that it does not already own.

The EU Commission, which has been tightening its approach to air mergers after previously approved deals led to price increases despite remedies, declined to comment on the matter. Meanwhile, Korean Air stated that it had submitted remedies that would address the European Commission's (EC) concerns after comprehensive discussions.

"We will continue our efforts to secure the approval from the EC and the remaining regulatory bodies," Korean Air said in a statement.

However, the deal is not yet fully in the clear. It still requires approval from regulatory bodies in the United States and Japan. But if it does go through, it could signal a significant shift in the balance of power in the Asian aviation market, with Korean Air poised to become a major player.

As with any merger or acquisition, there are risks involved. But for investors, the potential benefits could be significant. The deal could potentially lead to increased efficiency and cost savings for the combined entity, which could, in turn, boost profitability. However, investors should keep a close eye on the regulatory hurdles that still need to be cleared before the deal is finalized.

This story is yet another sign of the ongoing consolidation in the airline industry, a trend that is likely to continue as airlines seek to navigate the challenging market conditions created by the Covid-19 pandemic. As always, investors should carefully consider the potential risks and rewards before making any investment decisions.

($1 = 1,310.4200 won)