Date: Friday, June 2, 2023
Korean Air faces the prospect that its deal to acquire indebted Asiana Airlines could fall apart over U.S. and European Union concerns about reduced competition on certain cargo routes.
The U.S. Department of Justice is considering legal action to stop the merger because of concern the combined airline would dominate routes to the U.S. that they currently compete on for passenger and cargo traffic, according to reporting by Politico.
Both airlines fly to San Francisco, Los Angeles, Seattle, New York City and Honolulu.
Korean Air has 23 freighters in its fleet, including seven Boeing 747-8 and a dozen 777 aircraft. It is the world’s fifth-largest cargo carrier by volume. It is the third-largest carrier when express parcel carriers FedEx and UPS are excluded. Asiana operates 10 Boeing 747 freighters and one 767, according to Flightradar24.
Politico cited three sources with knowledge of the deliberations. One of them said the Biden administration is concerned that the merger would place too much control of cargo transportation of key goods like microchips in the hands of one company, which could harm supply chain resiliency.
Earlier this month, the European Union’s antitrust regulator informed Korean Air that it objected to the proposed takeover of South Korea’s second-largest airline because it may reduce passenger and cargo competition between Europe and South Korea. Korean Air agreed in November 2020 to take a majority stake in Asiana at the urging of the South Korean government.
Japan is the only other government that is still reviewing the merger. The deal has the green light from 11 competition authorities around the world.
South Korean regulators approved the merger on condition that the combined firm give up flights to other airlines on routes where it has a large market share. The United Kingdom’s Competition and Markets Authority approved the combination of the two airlines on March 1 after Korean Air agreed to give up some airport slots and partner with Virgin Atlantic on the London Heathrow – Seoul route. As a condition for China’s approval in December, Korean Air will transfer slots to any new airlines wishing to start air services on nine routes where both Korean Air and Asiana operate.
The Justice Department has not responded to the Politico story, but the Biden administration has taken a pro-consumer stance in pushing back against concentration in many industries. Earlier this year, the Justice Department filed suit to block JetBlue’s $3.8 billion acquisition of Spirit Airlines (NYSE: SAVE). And a judge this month ruled that JetBlue (NASDAQ: JBLU) and American Airlines (NASDAQ: AAL) have to abandon an alliance in the Northeast corridor after the U.S. government sued.
Seven passenger airlines operate between South Korea and the U.S., including Delta Air Lines (NYSE: DAL), a Korean Air joint venture partner, and United Airlines (NASDAQ: UAL).
New China cargo route
In other cargo news, Korean Air said it had started operating a Boeing 777 freighter on Thursday to Zhengzhou, China, twice a week to meet rising demand for exports of mobile phone and electronic parts. The flight runs from Seoul’s Incheon Airport with an intermediate stop in Xi’an, China.
Zhengzhou is a major high-tech manufacturing hub and home to the largest iPhone factory in the world, operated by Foxconn. The area has also attracted automotive battery manufacturers and robotics companies.
With the launch of the Zhengzhou service, Korean Air now operates scheduled air cargo services to six cities in China, including Shanghai, Tianjin, Guangzhou, Xi’an and Hong Kong. The airline said it seeks to develop its cargo business in central and western regions of China.
“In line with China’s reopening, the new route will allow the airline to support China’s dynamic logistics needs as well as expand the airline’s revenue base,” Korean Air said in a news release.
Korean Air’s cargo revenue tumbled 51% in the first quarter as the global slowdown in trade continued to take hold and carriers undercut each other on rates.
The International Air Transport Association in April certified Korean Air as meeting its top standards for safely and efficiently handling shipments of lithium batteries, which can be dangerous on aircraft if not properly packaged and handled. Korean Air said lithium batteries represent more than 10% of the airline’s total cargo volume and that their share will grow with consumer demand for smartphones, hand-held devices and electric vehicles.