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Longest airline M&A deal on record, data shows

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Korean Air to take 63.9% Asiana stake by Dec. 11

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US regulators could yet raise competition concerns

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Airline consolidation rare in Asia

(Recasts as standback, adds TV)

By Lisa Barrington

SEOUL, Dec 3 (Reuters) - 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 ( QUBSF ) and Japan's ANA Holdings ( ALNPF ), 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.

($1 = 1,403.4200 won)