In a 3:1 vote of its Board of Directors last Thursday (02NOV23), Asiana Airlines opted to sell its cargo unit. The decision came three days after the body failed to reach a conclusion amid disagreements over the sell-off of the business division. This marks the end of a three-year long standoff triggered by the plan of national rival, Korean Air, to swallow Asiana completely.
Asiana accounts for roughly a fifth of South Korea's market for international air cargo. With 11 freighters in its fleet, its network encompasses 21 routes to 25 cities in 12 countries, including the United States and Germany.
In a regulatory filing, Asiana announced the board's cargo decision, noting it as a part of remedial measures for Korean Air to be submitted to the European Commission (EC) to win approval for the merger with its national competitor. The decision came three days after the Board of Directors failed to reach a conclusion amid disagreements over the sell-off of the freight division.
The EC has raised concerns that Korean Air's intended acquisition of Asiana may restrict competition in the markets for passenger and cargo air transport services between the EU and South Korea. A rejection of the cargo division sale could have potentially dampened the prospects of the merger deal, which has been pursued for the past three years.
But even if the intended takeover gets green light from the European Union, it still needs approval from the United States and Japan, market experts point out. Korean Air said in a statement, that while it was continuing with “its efforts to secure the approval from the European Commission, the airline will also communicate closely with the remaining regulatory bodies to finalize the approval process as quickly as possible.”
Despite the cargo business sale approval, an immediate blessing of the merger by Brussels is not guaranteed. However, it can be expected that the chances of obtaining a conditional approval are to increase. Despite Asiana's cargo business sale decision, Korean Air still faces an uphill battle in cementing the intended merger deal, as the U.S. Department of Justice is reportedly considering blocking the intent due to competition reasons in the U.S. market. The strong opposition by Asiana's union is another major obstacle for the airline’s foreseeable merger with Korean Air. Unionized workers have strongly resisted the cargo business sale intentions, for they fear job cuts following a takeover by Korean Air.
Price discussions continue
Analysts noted the desired valuation for the air cargo unit of some 700 billion won (US$520 million) including debt, was probably too high. That could become a new stumbling block for the sale and hence regulatory approval. “The price seems to be way too expensive, and there aren't that many players at home with the means to spend that much money on Asiana's debt-ridden cargo unit [...] there are lingering uncertainties,” Bae Se-ho, an analyst at Hi Investment & Securities, is quoted by agencies.
From Star to Sky
A takeover of Asiana by its larger domestic competitor Korean Air, would also have consequences for the airline association, Star Alliance (United, Lufthansa, ANA, Avianca, Egyptair, etc.). They would lose a long-standing member to the rival organization Sky Team and its cargo alliance SkyTeam Cargo, to which Korean Air belongs.
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