Jan Cienski in Warsaw -

Contrary to recent suggestions of an emerging turnaround from the flag carrier's management, it appears LOT Polish Airlines remains in serious trouble. An analysis of the airline's books by accountancy firm KPMG found large and growing liquidity problems that could put future operations in doubt.

The KPMG analysis, obtained by the Dziennik Gazeta Prawna newspaper, finds LOT's overall ongoing and contingent liabilities at PLN3.7bn (€896m) at the end of 2013, a PLN500m increase over a year earlier. As of the end of December, the airline had PLN258m of negative capital, with short-term liabilities PLN462m larger than its assets. The dire numbers "indicate continuing uncertainty which could raise serious doubts about the ability of the company to continue functioning," the accountants wrote.

The gloomy situation at the airline revealed by KPMG stands in stark contrast to a recent announcement by management, which asserted LOT has embarked on a deep restructuring and that its results are finally beginning to turn around. The state-owned carrier posted a net profit of PLN26m in 2013, compared with a PLN400m net loss the previous year. The goal is to have LOT permanently flying in the black by 2015.

The 2012 loss tipped the flag carrier into deep financial trouble, which saw it forced to request a PLN400m bailout from the Polish government. Visibly irked, Warsaw promptly replaced top management. A new team, headed by CEO Sebastian Mikosz has revamped LOT's long-haul network and renegotiated contracts with unions to cut costs.

The aid package is being examined by the European Commission. If Brussels finds the rescue funds were improperly given and must be repaid, LOT would likely go bankrupt. It was just such a scenario that grounded Hungary's Malev airlines in 2012.

The government has actually approved a second PLN400m tranche of aid for LOT, but Mikosz has not tapped that as yet, insisting instead that he can fix the carrier's problems. However, it's thought the airline may take advantage of the money later this year.

The problem revealed by the KPMG numbers is that they show LOT's liabilities grew even whilst it was benefitting from the first tranche of government cash. It also received an undisclosed sum from Boeing after its newly-leased 787 Dreamliners were grounded in early 2013 due to technical problems. That suggests the debt load accumulated during previous loss-making years is still weighing on the company.

Mikosz's ultimate goal is to beat LOT into good enough shape to allow it to be sold. However, large European carriers are so far uninterested, while non-EU airlines cannot buy a controlling stake in an EU carrier.