Wojciech Kosc in Warsaw -

In a new twist in the protracted story of the Polish government's attempts to save troubled flag carrier LOT Polish Airlines, the cabinet is reportedly set to discuss a new rescue plan on January 22, under which all the airline's assets will be transferred to subsidiary Eurolot. However, it's questionable that will buy LOT the time it needs to find a saviour.

The assets that are reportedly going to be transferred from LOT to Eurolot are the rights to the LOT brand and logo and its slots - take off and touch down times - that the airlines holds at major international airports such as Paris, London and Frankfurt, reports Rzeczpospolita. Moving the assets to Eurolot - formerly a wholly owned subsidiary that is now 62% owned by the state after being spun out of LOT in 2011 - would save the brand name while shedding the company's debt burden, the newspaper writes.

LOT reported a loss of PLN145m (€34m) in 2011, following a loss of PLN163m in 2010. Full data for 2012 has yet to be released, but the airline asked the government for yet another bailout in December. As part of an initial rescue plan that the government made public earlier in January, Eurolot was set to take over the domestic and European flights, with LOT retaining flights to the US and Asia. However, under the latest scheme, Eurolot would take over all assets and activities. Meanwhile, a government agency is reportedly in the process of negotiating the purchase of the remaining 38% of Eurolot that is currently owned by LOT. "The possibility of Eurolot taking over all of LOT's assets in one step is one of the options considered - some at the treasury ministry (which holds and manages Polish state assets) - are pushing very strongly for it," an unnamed source was quoted by Dow Jonesas saying. "Details are being fine-tuned now."

However, Zbigniew Salek, an aviation analyst and board member of the International Association of Airport Executives (IAAE), warns that if the government goes for the latest scheme, it would require perfect execution to make it work; that's something he doubts the politicians are capable of carrying out. "For more than 10 years now, LOT has been taken care of by subsequent governments and it still has not managed to get out of trouble. There are no premises to think that this time it's going to be different," Salek warns.

With the airline having been loss-making since 2008, Salek suggests it is now too late to save LOT, as the company has only been sinking deeper into financial trouble and the assets on offer are no longer exciting. "The logo and the slots aren't very good assets. While the logo may have a sentimental value to older generations, younger passengers want good service, good prices and good connections," he insists. "The slots could be a problem as well, because shifting them to Eurolot will also shift all the expenditure that Eurolot would need to find to make use of the slots."

Brussels troubles

Quite apart from the fiscal challenge of supporting the airline, the government is wary of EU regulators and their interpretation governing bailouts. A demand from Brussels to Hungarian flag carrier Malev in early 2012 that it pay back €130m granted in various forms of state aid in 2007-2010 precipitated a collapse in that airline.

In a bid to circumvent that risk, Warsaw has been masking its handouts to LOT as loans rather than public help. Early in January, the government transferred PLN400m to the airline, with Prime Minister Donald Tusk insisting it was "a loan that the company will have to pay back."

Salek says: "Logic dictates that if there's a plan, it's to avoid getting in trouble with the EU over public help to companies," but he says that without details, it's tricky to tell how the latest restructuring plan on the table will achieve that.

Other officials have been careful to make the right noises, with talks ongoing with Brussels over the loans/bailout and their effect on competition. "If the state is to help, then that help must make sense," Deputy Treasury Minister Pawel Tamborski told the IAR news agency last month. "The restructuring programme is supposed to lead to the airline paying its own way - without that there is no sense in using public funds."

However, that self-reliance looks no closer for LOT, despite several years of shedding assets and attempts to restructure. On top of the funds it has handed out, Warsaw has had to act as a guarantor in other ways. In 2011, for instance, state-owned insurer PZU acquired LOT's Warsaw head office for in excess of PLN100m after the asset failed to attract any other bidders.

Salek suggests that at this point, the latest rescue should be the last, and the company now left to sink or swim. "What should have been done to save LOT years ago was never done, for example renewal of the fleet or protecting it against the influx of cheaper carriers in late 1990s and early 2000s," he points out.

While Warsaw is clearly hoping that it can come up with a plan that will buy LOT enough time to finally find a buyer after years of trying to offload it, the government has also hinted in recent weeks that it could soon be ready to unplug the flag carrier from life support. "Even if this is going to prove unpopular, I think it's high time to end the doctrine that LOT is a company that must be rescued at all costs, no matter what the reality is," Tusk said on January 3.

With European airlines falling like nine pins in 2012, Warsaw spent much of the year smugly anticipating that it would finally offload LOT, with Turkish Airlines - one of a handful of growing operators from the east looking for a European hub - in detailed talks. However, that deal broke down in June. And with little sign of interest from any other suitor since, time is clearly running out.