The European Commission investigates the project of acquisition of Asiana Airlines by Korean Airlines

Korean Airlines notified the European Commission of its proposed acquisition of Asiana Airlines on 13 January 2023. On 17 February 2023, the Commission opened an in-depth investigation into the proposed acquisition to assess whether it could restrict competition on the markets of passenger and cargo air transport services between the EEA and South Korea. On 17 May 2023, the Commission issued a Statement of Objections to Korean Air.

Korean Air has made a number of notifications to several national competition authorities responsible for merger control. Eleven countries (China, Australia, Malaysia, the Philippines, South Korea, Singapore, Vietnam, Taiwan, Thailand, the United Kingdom and Turkey) have approved the proposed acquisition with or without conditions.

On 13 January 2023, the airline notified this project of acquisition to the European Commission for approval under its merger control procedure.

In this context, the Commission launched an investigation to study the consequences of this proposed acquisition on the markets concerned. It examined the internal documents of the companies concerned and gathered comments from competing airlines and potential competitors.

Following this preliminary investigation, the Commission decided on 17 February 2023 to open an in-depth investigation into this acquisition because of the risk of restricting competition in the air transport services markets for passengers and cargo between the EEA and South Korea.

The two operators are the largest airlines in South Korea. The IATA ranked Korean and Asiana Air 19th and 29th respectively in the world before the COVID-19 pandemic. The companies are direct competitors in the market of air transport of passengers, but also in freight traffic air transport between South Korea and the European Economic Area (EEA). They operate on Asian air links as well as long-haul routes between South Korea and the rest of the world.

In this case, Korean and Asiana Airlines both operate passenger transport air links between South Korea and the EEA, especially to Heathrow, Paris Roissy, Rome and Frankfurt. According to the European Commission, the merger could therefore lead to the elimination of competition over these four routes. Such an operation would likely lead to an increase in prices and/or a reduction in the quality of passenger transport services on these routes.

In addition, the Commission notes that the transaction could reduce competition in the provision of cargo transport services between Europe and South Korea since the competitors of the proposed future group would face barriers to entry, particularly regulatory barriers to develop their activities and would be unable to insure sufficient competitive pressure to counterbalance the market power of the new company.

Korean Air also asserted that one of the main arguments for acquiring Asiana was to limit the serious socio-economic consequences of the coronavirus pandemic in the South Korean air transport sector. In this regard, on 8 April 2020 Korean Air laid off approximately 70% of its employees for six months. Nevertheless, according to the Commission, it is unlikely that the two airlines will lose much competitiveness if the operation does not go ahead.

Korean Airlines did not offer any commitments to soothe the Commission's concerns following the opening of phase II of the merger procedure.

The results of its in-depth investigation confirmed the Commission's doubts and, on 17 May 2023, it notified Korean Airlines of the grievances against the merger project. These are based on the risk that the acquisition would restrict competition in the provision of passenger transport services between South Korea, France, Germany and Italy, and distort competition in freight transport services between the whole of Europe and South Korea.

Korean Air now has four weeks to consult the file and contest the Commission's position in writing. The airline can also request an audition. The company has the option of submitting structural commitments (e.g. aircraft disposals, slot relinquishments, etc.) or behavioral commitments (limiting commercial expansion) to address the Commission's concerns.

The final decision of the Commission is expected no later than 3 August.

Phase II merger control proceedings remain limited. At present, seven proposed mergers are the subject of in-depth investigations in sectors such as telecommunications, media, and satellite communications services among others.