Clare Nuttall in Bucharest -
Encouraged by Etihad Airways’s successful investment into Jat Airways (now rebranded as Air Serbia), governments across the Balkans are looking for strategic investors for their own struggling flag carriers. Airlines from Slovenia, Montenegro and Croatia will all be up for sale this year, while the Bosnian government is in talks to bail out BA Airlines.
Maintaining a national carrier has been a point of pride in Southeast Europe’s smaller economies, but the cost of subsidising tiny operators with outdated fleets has become an increasing burden, especially in the light of growing competition from low-cost carriers.
In Slovenia, an agreement on the sale of Adria Airways was signed between Slovenian Sovereign Holding (SDH), which is managing the country’s privatisation programme, and state funds Bank Assets Management Company and PDP, SDH confirmed in an emailed statement to bne IntelliNews. Together the three institutions own 91.58% of the airline.
Plans to privatise Adria were put on hold in the run-up to Slovenia’s July 2014 elections, as politicians courted voters by speaking out against privatisation. Since then, however, the process has been revived under new Prime Minister Miro Cerar.
Like most of its peers in other former Yugoslavian countries, Adria is unprofitable, reporting losses of €2.9mn in 2013. The increasing penetration of budget airlines Easyjet, Ryanair and Wizz Air into the region has chipped away at local carriers’ market shares, while European giants like Austrian Airlines, Lufthansa and Turkish Airlines are also present.
In fellow EU member state Croatia, the government approved plans to seek advisors for its search to find a strategic partner for national carrier Croatia Airlines on February 5. A previous attempt to sell off 49% of the airline failed in 2013, despite reports of interest from China Southern Airlines, Etihad and Turkish Airlines.
An analysis by the Centre for Aviation (CAPA) points out that while Croatia Airlines remains the country’s largest airline, “its market share is in long-term decline”, despite holding a domestic monopoly. Its share of scheduled seats has plummeted from 58% in 2004 to just 25% in 2014.
However, Zagreb has indicated it will carefully control who takes on the airline. “We cannot allow Croatia Airlines to be purchased by a predator, which would in turn destroy the company. Croatia Airlines needs a strategic partner and not a predator,” Croatia’s Minister for Sea, Transport and Infrastructure Siniša Hajdaš Dončić told a press conference in April 2014, according to the Ex-Yu Aviation News blog.
A restructuring programme has already been launched at Croatia Airlines, resulting in cutbacks to both its fleet and its workforce. If no suitable buyer comes forward in the next privatisation attempt, the programme will continue.
Montenegro’s flag carrier is also among five companies slated for privatisation in 2015, according to the Privatisation Council, though it will only be put up for sale if the government is confident of investor interest, the head of the council’s tender committee Branko Vujovic said in January, daily Vijesti reported.
However, as in Croatia, the Montenegrin government has indicated it wants to maintain control over the sector, another factor likely to deter potential investors. Montenegro’s transport ministry has already ruled out the sale of Airports of Montenegro, which runs the country’s two international airports. This decision prevented the sale of the carrier to Israel’s El Al back in 2009. Meanwhile, Podgorica is also considering keeping key international routes in state hands while Montenegro Airlines is sold off, broadcaster RTCG reported.
Some Balkan airlines have already bowed to financial pressure, with the national airlines in Albania, Kosovo and Macedonia folding so far. Recently, it appeared that Bosnia’s BH Airlines could be next. The airline’s outstanding debts reached €13mn early this year, and its accounts have been blocked for several months by the local arm of Hypo Alpe-Adria-Bank.
However, Sarajevo stepped in on February 5 with a short-term bailout package to enable the carrier to unblock its bank accounts and operate scheduled flights. This followed two weeks of talks between management, trade unionists and officials at the Ministry of |Transport and Communications, a BH Airlines spokesperson told bne IntelliNews.
The situation has only been resolved temporarily, the spokesperson added. Management will continue talks with the ministry, which has put forward suggestions for cost cutting and other reforms, with the aim of getting operations back to normal by the summer.
One option previously mulled by carriers in the region is a merger to create a larger airline capable of competing in the highly competitive European market, on the model of Scandinavia’s SAS. Four regional airlines - Adria, Croatia Airlines, Jat and Montenegro Airlines - were considering the idea back in 2012. However, the idea never got off the ground.
Now Air Serbia wants that role for itself, with plans to turn Belgrade into a regional hub following the August 2013 Etihad deal. Under the agreement, UAE-based Etihad acquired 49% of struggling Jat, which has since been rebranded as Air Serbia. Etihad and the Serbian government also agreed a plan to jointly invest $200mn.
Before the breakup of Yugoslavia, Jat was Europe’s tenth largest airline, but 20 years later the company was heavily indebted and the owner of an outdated fleet. The last 18 months have seen a remarkable turnaround with the launch of new services and a return to profitability. In October, Air Serbia reported a 54% increase in revenues and a 74% hike in passenger numbers in Q3 2014, compared to the same period of 2013.
Given the competition from an expanding Air Serbia, other regional carriers are now on the lookout for their own white knight investors from Europe, the Middle East or East Asia. As Air Serbia expands it is, however, questionable whether there will be room for a second major airline in the relatively small Balkan market, even given the steady increase in tourists. Moreover, the restrictions imposed by national governments will make it even more difficult to find investors.
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