No decision has been made on whether to file a case, and nothing is forthcoming. People said that the Ministry of Justice could finally take no action.
But the Justice Department has been investigating the November 2020 deal for nearly two years and is concerned it will implicate competition on overlapping routes into the United States, said the people, who were granted anonymity to discuss a confidential matter. Both companies fly to San Francisco, Los Angeles, Seattle, New York and Honolulu.
One of the people said management was concerned that the merger would put too much control over the transportation of key goods such as microchips in the hands of a single company, which could hurt supply chain resilience.
“In the last meeting with the Ministry of Justice on May 12, Korean Air learned that the authority has not yet taken a position and does not have a confirmed timeline,” a Korean Air spokesperson said in a statement. “Korean Air and the Ministry of Justice will continue dialogue until the final decision is made by the Ministry of Justice.”
The spokesperson said the company is making every effort to obtain all necessary approvals by reaffirming its proactive commitment to the Korean government’s project to restructure the Korean aviation market and protect the workforce in the industry. Korean Air will also confirm that the majority of customers on the affected routes are Korean citizens and that the airline is fully abiding by the robust and comprehensive set of remedies ordered by the Korea Fair Trade Commission.”
A spokesperson for the Department of Justice had no comment. Asiana did not immediately respond to a request for comment after hours local time.
One person said the investigation and the possibility of a lawsuit also raise sensitive diplomatic issues. That person said the Justice Department’s antitrust division is only concerned with the competitive effect of the deal, but is in touch with the State Department’s Bureau of East Asian and Pacific Affairs.
A State Department spokesperson did not immediately respond to a request for comment.
In addition, the DOJ’s involvement in a state-sanctioned business transaction could be complicated in court.
The airlines argue their merger can be protected under state doctrine, and anonymity was granted to discuss a confidential matter, said a fourth person familiar with the review. The legal principle, stemming from past US Supreme Court case law, prohibits US courts from ruling on the validity of official actions by foreign governments within their borders.
The South Korean government orchestrated the deal at the height of the pandemic in November 2020, and the country’s two flag carriers were working their way through more than a dozen regulatory approvals around the world. Signing off from antitrust regulators in the US, EU and Japan is the final hurdle.
EU regulators opened an in-depth investigation into the deal in February, and they have until August 3 to make a final decision. This week the European Commission issued preliminary objections to the deal, though it may eventually decide not to take action either. The EU is concerned about competition for passenger routes to Barcelona, Rome, Paris and Frankfurt as well as freight services across the bloc.
There is no immediate need for the Justice Department to make a decision, with the European Union this week giving the Justice Department some breathing space.
Antitrust agencies coordinate global merger reviews, and if pending investigations in other countries prevent a deal from being completed, US law enforcement is usually under less time pressure to act.
The $1.4 billion deal will give Korean Air approximately a 64 percent stake in Asiana, with significant financing from the Korea Development Bank. The Korean government backed the deal to boost ailing Asiana, whose faltering financial situation has been exacerbated by the pandemic.
However, upon approval of the deal, the Korea Antimonopoly Authority rejected the argument that the merger was justified in bailing out a declining company, arguing that Asiana was not insolvent and its financial condition was improving.
Regulators in countries like South Korea, China and the UK have already approved the deal. The UK’s Competition and Markets Authority agreed to this in March after Korean Air offered to pull some of its London sites and partner with Virgin Atlantic.
The global antitrust regulators have been in close touch. According to the decision of the Korea Fair Trade Commission in February 2022 to approve the deal, there have been nearly 30 rounds of conference calls with [eight] Countries including the United States, the European Union, China, Japan, the United Kingdom, Australia, Vietnam and Singapore.”
The Korea Fair Trade Commission said the joint venture will control 100 percent of the passenger traffic between Seoul and New York City, Los Angeles and Seattle, and will own nearly 80 percent of the routes between Seoul, San Francisco and Honolulu. United Airlines and Hawaiian Airlines operate nonstop routes between Seoul and San Francisco and Seoul and Honolulu, respectively.
As part of their agreement with the Korean regulator, the airlines agreed not to increase prices, reduce seat capacity or make significant quality cuts for 10 years after they struck the deal. They also agreed to hand over airport slots in Korea based on the demand of new entrants to the market.
But since the deal was announced, new flights have appeared on the staggered US routes. Air PREMIA, a new Korean airline, has begun flying from Seoul to both Los Angeles and Newark, slashing the combined company’s market shares on flights to Los Angeles and the New York metropolitan area. The two Korean companies point to this as evidence of a competitive market, according to the third person.
Air PREMIA also recently started flying from Seoul to Frankfurt.
After years of U.S. airlines merging, the Department of Justice and Department of Transportation reversed course under the White House’s July 2021 Competition Policy Executive Order. In 2021, the Department of Justice sued to break up a partnership between JetBlue Airways and American Airlines, and is awaiting a court ruling. After last year’s trial. And in March, the Justice Department and Department of Transportation moved to block JetBlue’s acquisition of low-cost carrier Spirit, with the Justice Department set to go to trial in October.
While most merger challenges have historically settled, Assistant Attorney General Jonathan Kanter who heads the Justice Department’s antitrust division has repeatedly stated his preference for litigation. So far, the track record has been mixed, with the DOJ losing three out of five merger challenges under his watch.
Much air travel between the United States and the rest of the world is governed by the bilateral Open Skies Treaties, which allow airlines from the United States and other countries to operate in their own airspace. There is only one such agreement between the United States and South Korea.
While the exact impact on any antitrust case for the DOJ is unclear, experts say it would be a stretch to say that the Open Skies agreement between the United States and Korea precludes the merger challenge that the DOJ faces.
Indeed, newer versions of the treaties have no limits on the number of carriers from each country, said Severin Bornstein, a professor of economics at the University of California, Berkeley, unlike previous US practices of prioritizing their own airline industry. who have spent years consulting on competition issues with airlines.
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