May 25, 2023 11:59
The U.S. has raised fresh objections to Korean Air's takeover of Asiana Airlines, which together with resistance from the EU threatens to derail the whole deal.
Korean Air chairman Cho Won-tae on May 12 met with the U.S. deputy secretary of justice, accompanied by Kang Seog-hoon, the chairman of Asiana's main creditor Korea Development Bank, and Asiana CEO Won Yu-seok.
A source said, "The U.S. Justice Department voiced concerns that the merger could exacerbate monopolistic control and called on Korean Air to come up with a solution." Korean Air was told that a final decision had not been made and that discussions will continue, but a failure to resolve monopoly concerns could scupper the deal.
The U.S. government says Korean Air will end up with a quasi-monopoly on five of 13 routes connecting the two countries -- Honolulu, Los Angeles, New York, San Francisco and Seattle -- once it takes over Asiana.
United Airlines flies between Incheon and San Francisco, while Hawaiian Airlines covers the Incheon-Honolulu route, but they only account for 20 percent of those routes. Korean Air, Asiana and Delta Air Lines operate the other routes, but Korean Air and Delta are both in the SkyTeam alliance and the U.S. government views them as the same carrier.
Korean Air argued that most of the passengers on the routes are Koreans anyway so the takeover will have little impact on American consumers, while other carriers do not fly those routes because there is not enough demand from anyone else.
It also pointed out that budget carrier Air Premia is expanding flights to the U.S. Last November, Air Premia became the third airline in Korea to fly to Los Angeles five times a week, and it plans to fly to New York and San Francisco as well.
Another source said the U.S. has not commented on these objections but such matters are typically addressed in court.
Earlier this month the EU raised similar objections that would compel Korean Air to cede lucrative routes and takeoff and landing slots to its rivals. The European Commission said the takeover would "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]."
The EU's final decision is expected on Aug. 3.
That means owner Kumho Group's attempts to sell off troubled Asiana could be thrown back to square one.
In 2019 Kumho signed a deal with builder HDC Hyundai Development to alleviate its dire liquidity crunch, but the deal fell through when the coronavirus pandemic grounded flights.
Then KDB announced in November 2020 that Asiana will seek a buyout by Korean Air instead, and Korean Air paid W1 trillion as a signing fee and mid-term payment, leaving another W800 billion (US$1=W1,317). Creditors KDB and Export-Import Bank of Korea have so far injected W3.6 trillion into Asiana.
If the U.S. Justice Department decides to take legal steps now, Asiana could end up bankrupt. The carrier's debt-to-equity ratio stands at an alarming 2,013 percent as of the first quarter of this year, while its debts total W12.8 trillion. But Asiana's operating profit recovered to W741.6 billion last year after lockdown ended and passenger traffic rebounded.
Korean Air said the U.S.' position is not final and it continues to try and ease monopoly concerns.
If the takeover is scrapped, the Korean airline industry could face huge losses that would affect the entire country. An airline insider said, "The situation has now gone beyond the level a private company can handle, so the government must take active steps using its close relations with the U.S."
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