FTC investigating Asiana for alleged unfair business practices

The fair trade watchdog has begun looking into allegations that the nation‘s second-largest air carrier demanded unfair financial investments from a company that supplies the airline’s in-flight meals. 

According to LSG Sky Chefs, a catering company run by German airline Lufthansa, the company filed a complaint with the Fair Trade Commission claiming that Asiana demanded the company invest in bonds with warrants from Kumho Holdings in exchange for a contract extension.

When LSG Sky Chefs refused, Asiana Airlines chose to discontinue the in-flight meals contract between the two companies, LSG claims.

After selling its food unit to LSG Sky Chefs, Asiana Airlines had signed a five-year contract with LSG in 2003, which was extended twice in 2008 and 2013.

Asiana announced late last year that it has signed an agreement with Gate Gourmet to set up a joint-venture in-flight meal company to service Asiana‘s flights after the LSG contract expired in 2018.

Asiana owns 40 percent of the joint venture with Gate Gourmet, which will supply Asiana’s flights with in-flight meals for 30 years.

Gate Gourmet‘s parent company, China’s HNA, had bought Kumho Holdings‘ 160 billion won ($142 million) worth of bonds. 

At the time of the announcement, LSG had released an official statement saying that it was “never given an opportunity to engage in official negotiations or participate in a fair bidding process.”

“LSG will rigorously defend its rights and will take whatever steps are necessary to defend its business in Korea,” the company had said.

Part of those steps was to report Asiana’s alleged pressure for financial investments in exchange for a contract extension.

“This is the third time that LSG has filed a complaint with the FTC. The previous two complaints were dismissed, and we see no reason why the FTC will find fault this time around,” an official with Asiana said.

The official said that the airline has not yet received any requests or notifications regarding an ongoing investigation.

According to LSG Sky Chefs, the company reported Asiana to the FTC on May 29 and June 19 this year, but had failed to reach mediation because Asiana refused to participate. The third report was made on Aug. 23, leading to an investigation beginning Sept. 7. The third report included documents such as correspondence between the two companies.

“We received repeated requests for $200 million in financial investment (to Kumho Holdings) over a year starting in June 2015, but refused based on legal counsel. We offered investment in Asiana Airlines instead, but Asiana refused to negotiate and told us that they would not extend the contract unless we invested in Kumho Holdings,” an official speaking for LSG said. 

By Won Ho-jung (hjwon@heraldcorp.com)