pentiumvi

TK did offer status match pre-COVID, if you hold status in a different alliance.
Although their status match also required a TK international flight within first few months I believe.

thumbsup7

This merger and acquisition deal is in jeopardy as EU antitrust authority denied similar case of merger between Air Canada and Air tranjet. Air tranjet is third ranking international carrier within Canada market. They denied (actually required major adjustment on merger condition but Air Canada declined to accept and gave up) based on price hike and monopoly potential.
Asiana merger has same worry and even worse, there will be disruption on Star Alliance carrier through ICN hub.
Recently, UA focused to ICN rather than any other far east hub in the area.

pentiumvi

Are you saying this as fact or just your personal opinion?
If this is fact, do you have sources that indicate there are any EU concerns regarding this merger?

Adam Smith

Even if a company becomes insolvent, the regulators can still act against deals being done. Insolvency may give the acquiror slightly more latitude, but, for example, Lufthansa still had to make concessions to the EU competition authorities when it acquired parts of Air Berlin while the latter was insolvent.

At this time, OZ is not insolvent, and it's not entirely clear that it would become so without the KE transaction. There's actually a reasonable parallel to the AC-TS deal, as TS is also struggling but not insolvent. Here is what the EU had to say in their statement after AC and TS announced that they were cancelling their deal:

EU merger control policy standards and framework also apply in times of severe shocks affecting the economy. While the coronavirus outbreak has strongly impacted the airline sector, the preservation of competitive market structures is essential to ensure that the recovery can be swift and strong. Markets should remain dynamic and competitive when travellers will again be able to fly over the Atlantic for holidays or to visit their beloved ones.

Every case has to be assessed on its facts and merits. In this case, the Commission investigated the extent to which the coronavirus crisis would impact Air Canada, Transat and their competitors' operations and based on the information available to date, reached the preliminary conclusion that in the long-run Air Canada and Transat would likely remain actual or potential competitors on the vast majority of the routes between the European Economic Area and Canada, which they both operated before the crisis.

According to the Korea Times, nine jurisdictions need to approve the deal (Korea, US, EU, China, Japan, Vietnam, Taiwan, Turkey, and Thailand), but only four approvals are required for the deal to go through. This suggests that OZ and KE have agreed to live with whatever consequences the regulators in non-approving jurisdictions might impose (although I'm sure that the Korean approval is a must-have).

But the article is not clear whether some of those jurisdictions are must-haves to the deal or not. It's possible that the merger agreement specifies that Korean, Japanese, Chinese, and US approvals are required to get the deal done, for example. Or it may say that Korean plus any other three are sufficient.

I also found an article from the Korea Herald in January saying that approval from all jurisdictions is required, so it's not entirely clear. Unfortunately, I haven't been able to find any of the transaction documents themselves. If someone could point me to them, I'd happily take a look and try to offer some analysis (as long as there are English versions of the documents).

Per above, it's not clear that EU approval is a necessary condition to this deal going through. If enough other jurisdictions approve, OZ and KE may simply proceed with the transaction and accept sanctions from the EU competition authorities.

thumbsup7

Merger seeking entity, Hajin KAL submitted antitrust review to nine countries which they should receive approval or else they can not fly to these markets. They also submitted simple notice of intention to merger to UK, Malaysia, Australia, Singapore and Philippine those Hanjin KAL is not seeking approval. https://www.aerospace-technology.com...asiana-turket/

Adam Smith

That's not necessarily the case. The EU can't legally prevent a transaction between two Korean entities. If they choose to consummate the deal, the EU could simply choose to impose a fine, or it may pursue other remedies than shutting the combined entity out of European markets altogether.

Here is a summary of what the EU can do (source):

Implementation before approval or after prohibition

The implementation of a transaction before approval or after prohibition can lead to a fine of up to 10% of the aggregate worldwide turnover. The Commission can also take measures to restore or maintain effective competition, which could include an order to dissolve the concentration.

(Note that the last bit would not be applicable here, as the EU's powers will be confined to its own borders)

"Tak[ing] measures to restore or maintain effective competition" could include preventing the merged entity from flying to the EU altogether, or it could involve taking away some (but not all) slots and giving them to other airlines to start competing services, or other measures that are less than barring all flights to the EU.

NickB

AIUI, the EU could require a de-merger regardless of whether the companies are based, unless the companies in question decide to pull out of the European market altogether, in which case the EU competition issue would disappear altogether

Adam Smith

Yes, the EU competition authorities can make whatever orders they like. My point was that they don't have jurisdiction in Korea, so if they order a breakup, it's unlikely to be enforceable, meaning the consequences are likely limited to preventing the merged entity from flying to the EU.

If the EU is being pragmatic, I suspect they'll negotiate certain remedies with KE/OZ to address whatever competition issues their review uncovers, and approve the deal. If the deal can go ahead with or without them (which, as I said above, isn't totally clear), it's likely better to extract some concessions rather than forcing the merged entity out of the market altogether, which would likely be even worse for EU citizens than KE having a monopoly on some routes.

This differs from the AC-TS deal cited by several others above. Europe represents a huge portion of TS's business, as well as AC's, so there was no way to do a deal without EU approval.

LAX

For those that follow this closely, is there any alternative should KE's purchase not go through for whatever reason? How long can OZ survive without a buyer?

LAX

Gasolin

I wouldn't think a merger wouldn't go through just because the EU said no. Especially since it's happening in Korea. But the US is a massive market for both of them. That's something that would be interesting if the US said no for anti trust reasons.

Sea-Wolf

I believe the EU competition authorities are also allowed to consider the likely consequences of them saying No as well. So, OZ potentially going under as a result of the application getting knocked back and the flow on impacts of that is something they'll be thinking about too.

jamar

I mean, they could prevent the merger of any EU-based subsidiaries (for example, any entities they may have used to hire local ground staff if they have any). It’d be a minor inconvenience but one nonetheless. That’s assuming they can’t reach further up the ownership chain and ask things of The rest of the associated chaebol.

Wasn't HDC originally going to be the buyer before KE was basically steered towards merging?

thumbsup7

I agree on this aspect. Star alliance through ICN compared to Skyteam alliance can be good index how much this merger deal can impact overall market.
Do anyone have this data?

NickB

But if the entity does not fly into the EU, then the problem disappears as there is no longer a breach of EU competition law. If the entity still wants to fly into the EU, then it would have no choice than to comply with the de-merger decision, hence the notion that such a decision would be unenforceable outside the EU is entirely irrelevant. There is no major issue with enforcement if they keep on flying in the EU (there are various ways to ensure enforcement in this situation) and the issue disappears if they don't fly in to the EU.

Clearly, if the entity has no interest in the EU market whatsoever, then they will not be particularly concerned by what the EU competition authorities decide. However, if they still want to fly to the EU, then they have no choice but to comply.

Adam Smith

The US will be interesting, because AA and UA operate very few flights to ICN, and DL and KE have a joint venture.

It's possible that there's viewed to be attractive enough connection options, or threat of competition from UA/AA, that the regulators will approve it, or that KE/OZ will be able to offer concessions that placate the regulators about the anti-competitive effects.

They can consider that, but there's still a high bar to clear. Air Berlin was already insolvent when Lufthansa applied to buy a bunch of its assets, and LH still had to make significant concessions to win approval for the deal.

In a deal like this, local subsidiaries are usually not merged. It would be more common to transfer the assets out and wind it up, or even sometimes leave it around indefinitely as a sort of zombie corporation. OZ and KE likely have negligible assets in Europe anyway.

That's beyond my expertise here, but if there were significant ramifications for Hanjin or whoever, beyond what would happen at the airline level, I expect they would have made EU approval an outright requirement.

The breach of EU competition law occurs when a prohibited merger is executed. I don't know that pulling out of the market altogether (which hurts EU consumers) cures the breach like you're suggesting it does. I think that pulling out would place them beyond the effective reach of penalties from the EU, but I don't think they could pull out and just wipe the slate clean. Otherwise it would be easy for any foreign anti-competitive merged entities to simply pull out of the EU briefly to avoid the penalties then jump right back in with their newfound market power.

Regardless, I think we may be expending more energy on this than is really warranted, because there's not a huge amount of overlap. As far as I can tell, the merger likely only impacts CDG, FRA, and FCO (LHR is now out of EU jurisdiction, so would be a matter for UK regulators rather than EU). It's not like there are dozens of routes that would be of concern to regulators. For reference, the AC-TS case that ran in to difficulties with the EU earlier this year had over 30 markets that were of concern.