Malev refutes Russian majority control claims

By bne IntelliNews December 18, 2007

Robert Smyth in Budapest -

When Hungary's national airline was bought by the AirBridge consortium, which is part owned by Boris Abramovich, CEO of Russia's KrasAir, many automatically assumed that Malev had become Russian. Now Malev's new owners have been at pains to stress it's majority owned by Hungarians since it emerged the airline is being probed by the European Commission over suspected Russian majority ownership that, if proven, would see the airline disastrously stripped of the benefits of being part of the internal market.

The European Commission is indeed looking into the ownership of Malev, although appears not to be singling out Hungary's national airline but rather carrying out a business-as-usual type of check as it would do for any other big airline buyout.

Any EU Airline that's in talks with a non-EU airline will have to prove to its national authorities it is still owned and effectively controlled (50%-plus) by an EU person or an EU body, says a source from the European Commission who requested anonymity. "If that should not be the case, it would lose all the benefits of the EU internal market, because it would be considered as a third-country carrier," the source says.

However, the source stresses the Commission is not particularly investigating the Malev case; it will only apply the rules and require the national authorities to check the effective control of the airline. "This is a common task performed in all similar cases," says the source.

Hungarian in name and structure

In an earlier bne interview with the former CEO Lloyd Paxton in August, Malev spokeswoman Krisztina Nemeth almost jumped out of her seat at the question of how Malev would be perceived as a Russian-owned company. She moved quickly to point out that AirBridge Zrt. is not a Russian company but in fact a Hungarian-registered closed shareholding, in which the Hungarian owners by Magdolna Kolto and Kalman Kiss hold 51%, with the rest owned by Russian Boris Abramovich, CEO of Russia's KrasAir. Kiss is deputy chair of Malév's board, and Kolto chair of the Malév supervisory board.

AirBridge bought Malev from the Hungarian state in April, pledging €30m to straighten out the struggling airline while hoping to cash in on Budapest's boast of being the East-West nexus as well as the surging demand for business travel across the region.

Nothing has changed with the ownership since the deal was completed, Nemeth told bne on December 14, adding that the current headlines are the result of nothing more than press speculation. "The majority of the members of the general assembly and the board of directors are also Hungarian," she says.

Six of the 11 members of the board of directors of Malév, and seven of the nine members of the supervisory board of Malév, the airline's monitoring body, are Hungarian citizens, revealed Malev in response to the recent press reports. "The resolutions of the board of directors, the supervisory board and the general meeting of shareholders of Malév Hungarian Airlines are exclusively decided upon by a Hungarian majority that manages and controls the airline," said Malev in a statement. The airline also observed that the airline's Russian chief executive officer, Peter Leonov, has lived in Hungary for 16 years and is resident and works in the country with a valid immigration permit.

Malev's strategy for bridging East and West relies on major Russian involvement, but the four-way agreement signed on December 7 between Malév, AiRUnion, Sukhoi and Vnyesekonom Bank as part of the Hungarian-Russian intergovernmental consultation is specifically of a business nature and has absolutely no bearing on the ownership, asserted Malev. "The document lays down the potential framework for mutually advantageous business cooperation, which may be followed by specific contracts at a later date," it said.

Nemeth adds that she has been assured by the Hungarian Transport Authority, which she contacted on December 13, that no investigation is underway. The authority told bne that it's unaware as to whether the European Commission had undertaken an investigation of Malev. "The European Commission asked for information related to the privatisation process, as it does with every ownership change, and the Hungarian authorities informed the Commission, but an investigation was not undertaken," it said.

Meanwhile, the spokesman for the Hungarian Prime Minister's Office did not respond to bne's questions.

The Commission source declined to say whether Hungary could have become a target for the EU in retaliation for what the EU views as the nationalistic "Lex MOL" law, which was recently passed to prevent foreign companies, namely Austria's OMV, from taking control of key national assets, ie. the Hungarian oil and gas firm Mol.

That law begs the question of why would Hungary would accept Russian ownership of its national airline if it's so protective of its key strategic companies, although Malev is in debt while energy giant Mol is not.

Analysts have also suggested that the investigation into Malev is the result of Russia's worsening relationship with the EU.

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Malev refutes Russian majority control claims

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