Mavcom approves Korean Air-Asiana merger

The merger may constitute a ‘failing firm defence’ merger as Asiana has been in a financial distress for some time

by SHAFIQQUL ALIFF / Pic by BLOOMBERG

THE Malaysian Aviation Commission (Mavcom) has approved the merger between air passenger services Korean Air Co Ltd and Asiana Airlines Inc.

Mavcom said the merger submitted a Voluntary Notification and Application of an Anticipated Merger to Mavcom on March 19, 2021.

The Commission anticipated the merger to also constitute a “failing firm defence” merger as Asiana has been in a situation of financial distress for some time and cannot be rehabilitated but for the anticipated merger.

“Upon thorough review of the application, Mavcom decided that the merger does not infringe section 54 of the Malaysian Aviation Commission Act 2015 [Act 771], which prohibits any merger that results in the Substantial Lessening of Competition of the aviation industry.

“This decision is the first competition-related merger case to be analysed by any competition authority or sector regulator in Malaysia,” Mavcom said in a statement yesterday.

On Aug 17, Mavcom proposed to approve the merger between Korean Air and Asiana, noting that the move would not infringe local laws.

Mavcom also discovered that the merger would result in significant economic efficiencies and social benefits such as improved safety, reduced training costs, as well as efficiencies related to maintenance, repair and overhaul.

Meanwhile, Mavcom executive chairman Datuk Seri Saripuddin Kasim said the merger decision highlighted that Part VII: Competition of Act 771 is on par with the international standards for competition laws, as well as Mavcom’s capacity and capability to undertake the relevant competition analysis work for mergers.

He said this is to ensure the continued protection and development of the Malaysian aviation sector. “The commission has stood strong as an internationally recognised regulator of economic and consumer-related affairs for the aviation services industry since its inception in 2016.

“As the only sector regulator in Malaysia with the function to decide on competition-related matters for anticipated mergers and mergers, our approval of the Korean Air and Asiana merger takes into full consideration the information and feedback presented by all parties and the Commission’s own research and analysis,” he said.

In its final decision, the Commission concluded that while Korean Air and Asiana’s post-merger market share of one direct route between Seoul, South Korea and Kota Kinabalu, Malaysia would be higher, the merger would not cause any unilateral effects or act as a barrier to entry and expansion for the related markets.

The Commission also noted that passengers are able to exercise countervailing buyer power against these carriers due to the increase of online travel agencies and strict regulations by the Ministry of Land, Infrastructure and Transport of South Korea, which prevents the merging parties from significantly raising prices.