Polish LOT Airlines to present make-or-break plan

By bne IntelliNews February 25, 2013

bne -

Polish LOT Airlines is in the last chance saloon and will present a make-or-break restructuring plan to Warsaw next month, with the government indicating its weariness with putting its hand in its pocket.

A spokesman for the struggling flag carrier, Marek Klucinski, told reporters that the company will present its last-chance survival plan of layoffs and restructuring by March 20, reports Bloomberg. Prime Minister Donald Tusk has indicated there will be no more "infusions" or efforts to save LOT "at any cost."

Deputy Treasury Minister Rafal Baniak, who oversees the asset for the state, said on February 21 that the airline plans to lay off 500 of its 2,000 staff as part of its efforts to cut costs. Klucinski added a day later that a deep restructuring of the company and its routes will also be undertaken.

Flag carriers are struggling across Europe, squeezed between the crisis on one side and budget airlines on the other. The key is generally seen as attracting an investor - in particular one of the airlines from the east scouting for a European hub. However, EU rules forbid majority ownership from outside the bloc; a restriction that scuppered the sale of the government's 68% in LOT to Turkish Airlines last year.

LOT has been limping on over recent years with the help of government handouts. However, those are dicey when dealing with Brussels. After forecasting it would finally return to profit last year, the airline in December announced it actually made a loss of PLN157m - blaming high fuel costs - and promptly asked Warsaw for another bailout.

The government came up with PLN400m (€96m), but was clearly furious and sacked CEO Marcin Pirog. LOT is understood to have asked for as much as PLN1bn. However, the EU is investigating the handout, which could prove a significant risk. Brussels pushed Hungarian flag carrier Malev into bankruptcy a year ago when it insisted it pay back state aid it had recieved.

While it has failed to turn around in the last few years, LOT has hardly had the best of luck. In late 2012 it became the first European airline to fly the new Boeing Dreamliner 787, with the efficient jets starring in a plan to reduce fuel costs and open new and more profitable long haul routes. However, as part of a global grounding, the planes are stuck in Chicago and Warsaw, and have cost LOT PLN8m to sit around since January 16.

With the two planes costing $50,000 (€38,800) per day, and the airline now forced to extend leases on older Boeing 767s, as well as take on an extra couple of the planes on short term contracts, Baniak admitted last week that the Dreamliner has turned into a nightmare for the flag carrier's restructuring scheme. "The original turnaround plan had to be modified because of problems with the 787," he conceded in a statement. Warsaw discussed in January a new rescue scheme which would see the airline's assets transferred to subsidiary Eurolot.

Industry analysts, however, remain skeptical that Warsaw will be able to find any solution for the long-suffering flag carrier. "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," Zbigniew Salek, an aviation analyst and board member of the International Association of Airport Executives told bne in January.

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