Poland frees LOT from state control requirement

By bne IntelliNews May 13, 2013

bne -

The Polish parliament on May 10 abolished a requirement that the state hold a majority stake in struggling flag carrier LOT Polish Airlines. The move is a first step towards finding a strategic investor, although it's likely to be a tricky hunt.

The legislation, which opens the way for the treasury to drop its current stake of 93% to below a controlling interest of 51%, passed with 235 votes to 212 in the Sejm, according to dpa. However, EU regulations still forbid majority ownership of any airline in a member state being held from outside the bloc.

It was that limit that saw talks on selling control of the loss-making LOT to Turkish Airlines break down last year. While several national carriers from round Europe are struggling due to the crisis and high fuel costs, the list of EU-based suitors is small to non-existent right now. Meanwhile, rapidly growing operators from the Middle East and Asia are known to be interested in European acquisitions in order to secure hubs for their global networks.

However, as the breakdown of the talks with Turkish illustrated, selling a minority in a struggling regional airline is a tough ask. Prague managed it earlier this year, finding an angel in the form of Korean Air. However, the Asian airline paid a miniscule price of around €2.6m for the 44% stake it is taking in Czech Airlines.

Having pumped millions into LOT, Warsaw's repeal of the national limitations on ownership of its flag carrier suggests the government hopes it can seal a better deal with a European suitor. Earlier this month, Warsaw reportedly invited Norwegian Air - not inside the EU but presumably Norway's membership in the European Economic Area qualifies it - to consider an acquisition. Norwegian Air refused to comment on the topics CEO Bjorn Kjos discussed with government officials.

Bottomless pit

Warsaw will be licking its lips at the prospect of hooking the cash-rich Scandinavians, especially with LOT's transformation from flag carrier to albatross gathering pace. Loss making for years, the airline is in the midst of a long-term restructuring programme, and was meant to be back in the black in 2012. Instead, it asked Warsaw for a PLN400m (€96m) bailout in December.

That earned CEO Marcin Pirog the boot, accompanied by fury from Prime Minister Donald Tusk, who is clamping down on state-controlled companies, which he insists should be helping the government through the crisis, rather than the other way around. The PM said in January that Poland will not save LOT at any price, and that it won't let the airline become a "bottomless pit".

However, Pirog's successor Sebastian Mikosz - hired in February - has already had his first short-term plan to turn around LOT's fortunes rejected by the treasury. On May 8, he laid the groundwork for yet another request for state aid, saying that losses may have hit PLN200m in 2012.

LOT is clearly aware of Norwegian Air's strong recent results, and hopes it may have the financial muscle and interest to take the troublesome carrier off its hands. The two airlines may also be a good strategic fit, since Norwegian has long been active in the Polish market and now is keen to expand with long-haul routes.

LOT's recent strategy to turn around its performance has been to increase its own long-haul operations, and it announced earlier this month that it hopes to have its two grounded Boeing 787 Dreamliners back to service US and China routes in June. The Polish airline has another six of the highly efficient jets on order, with the first set for delivery in late May. Already in expansion mode, Norwegian's Kjos has been looking for more Dreamliners himself. The likelihood of a favourable deal to take LOT off Warsaw's hands is only likely to add sugar.

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