Korean Air is one step away from absorbing rival Asiana Airlines after the rivals agreed on Tuesday to European Commission merger conditions that Asiana divest its freighter business. 

The last hurdle is the U.S. government, which reportedly objects to the deal because of concern the combined airline would dominate routes to the United States where the two carriers currently compete head-to-head for passenger and cargo traffic. The Biden administration believes a Korean takeover of Asiana would limit competition and leave certain supply chains too dependent on a single carrier. 

Korean Air has 23 freighters in its fleet, including seven Boeing 747-8s and a dozen 777 aircraft. It is the world’s fifth-largest cargo carrier by volume and the third-largest carrier when express parcel carriers FedEx and UPS are excluded. Asiana operates 10 Boeing 747-400 freighters and one 767, according to Planespotters.

“Together, they would have been by far the largest carrier on these routes removing an important alternative for customers. Other competitors face regulatory and other barriers to expand their services and would have been unlikely to exert sufficient competitive pressure on the merged company. This would likely have led to increased prices or decreased quality for passengers and cargo customers,” the European Commission said in a news release.

The divestment includes freighter aircraft, airport slots, traffic rights, flight crew, and other employees, as well as customer cargo contracts, the EU’s executive body said. The airlines will need to appoint a financial advisory firm to oversee the divestment of Asiana’s all-cargo business, as well as initiate the bidding process and select a buyer. The European Commission must approve the selected buyer before the transaction can close. Once Korean Air completes the acquisition of Asiana Airlines, the actual cargo divestment process will take place.

The Commission said a suitable buyer “must be able, and have the incentive, to operate the divested businesses in a viable mannger to compete effectively with the merged company.”

The Loadstar recently reported that four South Korean low-cost carriers – Eastar Jet, Air Premia, Air Incheon and Jeju Air – had expressed interest to Korean Air, but they all lack experience operating a widebody fleet.

Korean Air announced its $1.35 billion bid for Asiana Airlines during the height of the pandemic in late 2020, when Asiana experienced financial trouble. Thirteen regulatory authorities have now given the Korean Air acquisition of Asiana the green light. Japan approved the merger on Jan. 30.

The European Union took just more than a year to consider Korean Air’s formal submission, which was preceded by two years of preliminary consultations.

The approval also requires Korean Air to provide support for a new airline that can serve four overlapping passenger routes between Korea and the EU. 

Under the passenger commitments, T’way Air has been appointed as the solution for the designated European passenger routes. In the second half of the year, T’way Air will gradually initiate operations on the four routes: Seoul Incheon-Paris, Seoul Incheon-Rome, Seoul Incheon-Barcelona and Seoul Incheon-Frankfurt. Korean Air said it will provide comprehensive support to T’way Air. 

Korean Air recently reported that cargo revenue for the fourth quarter fell 28.8% year over year.

Click here for more FreightWaves/American Shipper stories by Eric Kulisch.

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