The European Commission's competition body is poised to approve a bid by Korean Air (KE, Seoul Incheon) to takeover indebted smaller rival Asiana Airlines (OZ, Seoul Incheon) after both carriers proposed significant concessions to ease competitive concerns.

Citing sources close to the matter, Reuters reports the European Commission (EC) will approve the takeover in mid-February, one of three outstanding approvals (the others being the US and Japanese) needed for Korean to acquire a 63.9% shareholding in Asiana and merge the two airlines. However, the approval will be contingent on both airlines following through on promises to surrender slots at Frankfurt International, Rome Fiumicino, Barcelona El Prat, and Paris CDG Airports and Asiana selling its profitable cargo business. The merged airline will still fly into 10 European airports.

As confidence grows in Seoul that the EC will say yes, four local airlines have reportedly confirmed to the airlines and KPMG Samjong, the external party handling the divesture of the cargo operation, that they will bid to buy the business. Air Premia, Air Incheon, Eastar Jet, and Jeju Air have all formally expressed their interest and are now negotiating with financial institutions and other investors to lock in the required funding.

Local financial markets are forecasting a sale price of around KRW500 billion won (USD375 million). However, the buyer will also take on approximately double the amount in debt and need to acquire new aircraft. Jeju Air and Eastar Jet are reportedly front runners, with the markets liking Jeju's chances because it already holds cash reserves exceeding KRW300 billion (USD225 million). Jeju Air was the last of the potential buyers to express an interest in Asiana's cargo arm. There are unconfirmed reports that Asiana's biggest creditor, the Korea Development Bank, asked Jeju to consider bidding. Eastar Jet is also considered well-resourced, and both LCCs have the backing of private equity owners.

Meanwhile, t'way Air (TW, Daegu) remains the firm favourite to take over the passenger operations in the four European airports after the EC pointedly said they would rather another South Korean carrier took on the routes. Last year, ch-aviation reported Korean Air had offered t'way widebodied aircraft, crews, and MRO support to take on the routes.

In addition to EC approval, Korean and Asiana still need to secure approval from Japanese and US authorities. The Japanese have indicated that their decision will largely depend on what the EC and US decide. However, the United States Department of Justice, which handles competition matters on behalf of the US government, is taking a hard line, indicating that it will take time to make a decision and may not allow the merger.

Authorities in the US have taken an increasingly tough position on airline mergers, recently thwarting the proposed USD3.8 billion Spirit Airlines - JetBlue Airways tie up. "In the United States, we are continuing efforts to resolve concerns about competition restrictions through discussions on corrective action plans with the Department of Justice," reads a Korean Air statement. "In the case of Japan, we aim to complete the review within the first half of 2024 after submitting a formal report as soon as discussions on corrective action plans with the competition authorities are completed."