Korean Air expects to complete its drawn-out purchase of indebted South Korean rival Asiana Airlines next week, as long as U.S. anti-trust regulators do not object to the creation of one of Asia’s biggest carriers.
The 1.8 trillion won ($1.3 billion) mega-deal was first announced by South Korea’s largest carrier four years ago to rescue Asiana, which struggled with a plunge in travel demand during the COVID-19 pandemic.
In a sign that the long wait may finally be over, Korean Air on Tuesday moved the date it will take a 63.9% stake in Asiana forward by nine days to Dec. 11.
Its plan has been hampered by competition concerns, with the U.S. Department of Justice the last of 14 regulators yet to effectively give it a green light by not raising objections.
The DOJ declined to comment.
Data from LSEG and Dealogic shows that the time taken from announcement to completion would be the longest ever for an M&A deal between airlines.
A new Korean Air group could account for just over half of South Korea’s passenger capacity, and would become the world’s twelfth-largest airline by international capacity, a Reuters analysis of airline data from Cirium and OAG shows.
Airline consolidation is rarer in Asia than in Europe, which has seen a wave of mergers in the last two decades, and in North America where regulators fear the industry is too concentrated.
REMEDIES
Korean Air has had to make significant concessions to competition watchdogs around the world, including giving routes to other airlines and selling Asiana’s cargo operations.
The biggest came from the European Union, which has been pushing for tougher enforcement of competition remedies.
Korean Air had to surrender four European routes to domestic rival T’way Air, and even provide it with access to aircraft.
The EU, which gave its final approval last week, also required the sale of Asiana’s air cargo business, while Britain made Korean Air cede daily Seoul to London airport slots to Virgin Atlantic.
“Korean (Air) has had to pay a relatively steep price in terms of carve-outs to appease the regulators,” said Adrian Schofield, an analyst at CAPA Centre for Aviation.
“However, the deal is still definitely a net positive for Korean Air. It vaults them higher up in the rankings of international airlines, making them a more important player,” Schofield added.
Analysts expect Incheon airport, the world’s fourth busiest for international flights and which competes with Asian hubs Hong Kong and Singapore, to get a boost from the new Korean Air.
EFFICIENCIES
Asiana will be run as a subsidiary for up to two years before integrating into one airline which will keep the Korean Air name, but with new branding.
It will also create a single low-cost carrier by blending Asiana’s budget carriers Air Busan and Air Seoul with Korean Air’s Jin Air.
This could be bigger than domestic budget leaders Jeju Air and T’Way, a Reuters analysis of capacity and fleet data shows.
An enlarged Korean Air would sit firmly within Asia Pacific’s largest five airline groups by business revenues, alongside China Southern, Air China, China Eastern, Qantas Airways and Japan’s ANA Holdings, recent results show.
“The merger provides Asiana the protection of a well-capitalised partner. The airline has faced financial difficulties in recent years, stemming from a weak competitive position, over-leveraged balance sheet and operational inefficiencies,” said Siddharth Narkhede from Ishka, an aviation advisory business.
“That said, as part of the merger, Korean Air will also inherit Asiana’s significant debt burden. This could strain Korean Air’s healthy credit profile,” Narkhede added.
It is not yet clear what efficiencies and economies of scale Korean Air will realise from the combined fleet, staff and routes, of which Cirium schedule data shows around 67 are overlapping.
Completing the acquisition is a major milestone for the Asian market, said independent aviation analyst Brendan Sobie.
“But there is a lot of work to still be done by Korean Air in terms of integration and leveraging synergies,” he added.
Source: Reuters.com