Korean Air-Asiana Merger Hits Last Minute Hurdle

The EU has thrown a last-minute hurdle in the way of Korean Air's takeover of Asiana Airlines for fear that it would create a monopoly on certain routes.

As a result of review, the European Commission is concerned that the transaction may "reduce competition in the provision of passenger transport services on four routes between [Korea] and France, Germany, Italy and Spain... [and] reduce competition in the provision of cargo transport services between all of Europe and [Korea]."

Korean Air and Asiana Airlines had already secured the green light from 11 countries including China, Korea and the U.K., but approval from Japan, the U.S. and EU is pending.

The European Commission voiced concerns about the overall impact the merger could have on flight services in the region. Korean Air and Asiana Airlines "compete head-to-head in carrying passengers and cargo between the [European Economic Area] and [Korea]. Together, they would be by far the largest carriers of passengers and cargo on these routes and the merger may remove an important alternative for customers. The merger may therefore lead to increased prices or decreased quality of passenger and air transport services," it said.

The EU's final decision is expected on Aug. 3.

Korean Air has spent more than W100 billion on consulting and legal fees while owner Cho Won-tae held talks with the anti-trust authorities of the countries involved (US$1=W1,335).

A Korean Air spokesman said the carrier will "discuss corrective measures to secure approval."

But that could mean that Korean Air must surrender more of its routes and take-off and landing slots to rivals in order to gain approval for the merger, which could weaken its competitiveness.

To gain approval from the U.K., Korean Air already offered to hand over some Incheon-London routes and slots to Virgin Atlantic. Korean Air has 10 weekly slots at London's Heathrow Airport and Asiana Airlines seven, and Korean Air offered to give up seven.

The two Korean airlines also account for 60 percent of the routes between Korea and Barcelona, Frankfurt, Paris and Rome, raising the chances that some of those will have to be ceded as well.