Polish LOT asks for another handout as it submits restructuring plan

By bne IntelliNews June 21, 2013

bne -

LOT Polish Airlines has applied for a handout of PLN381m (€88m), the Polish treasury revealed on June 20. The ministry insisted this will be the last time the struggling flag carrier can apply for such aid for the next decade, as the country wearies of propping it up.

"This is the last attempt to rescue LOT by the treasury ministry," Treasury Minister Wlodzimierz Karpinski warned, according to Reuters. "Under EU regulations, the company will not be able to receive support from state funds for another 10 years."

The rescue comes on the heels of a PLN400m bailout LOT received in December. The national carrier revealed 2012 losses that were at their highest since 2008, with the accounts hit hard by options it had taken out to hedge its exposure to fuel prices. Warsaw was furious given that LOT had promised it would finally head back into the black last year.

The call for help was successful, but it saw both the airline's CEO and, eventually, the treasury minister fired. Prime Minister Donald Tusk pulled few punches as he insisted that the flag carrier would not be allowed to become a bottomless pit, and that it must now sink or swim.

The airline's latest restructuring plan now takes centre stage. June 20 was the deadline date for the troubled airline to submit the plan to the European Commission, which has granted preliminary approval of the December bailout. Karpinski told the Polish press earlier this month that Warsaw was in the midst of "difficult" talks with Brussels on the issue.

The treasury ministry, which must approve the plan before it's sent to Brussels, said on June 20 that it conditionally backs the resulting scheme, but that it has not yet approved further aid. While the request for more cash will only further enrage the government, Warsaw is also unlikely to easily allow LOT to go the way of Malev. The Hungarian flag carrier was wound up in February 2012 after the European Commission ordered it to pay back what it said was illegal state aid.

However, the treasury ministry declined to reveal details of the submitted rescue plan. Karpinski said in early June the airline forecasts it will have operating profit in 2014 after posting a loss for the last five years. LOT also declined to reveal specifics, saying the proposal still has to be negotiated with the European Commission.

The airline has shed 360 jobs so far this year to bring its payroll to around 1,700, with more reductions expected. Earlier this month, Gazeta Wyborcza, said another 800 staff will go under the new plan, while flights - mostly short-haul European routes - will be cut by a quarter.

The newspaper also claimed LOT will lease out two of its Boeing 787 Dreamliners - which are only just back in the air after months in mothballs due to a global grounding. The highly efficient long-haul jets were the basis of the airline's last strategy to reduce its losses. The company plans to post net income of PLN68m in 2015, according to the newspaper.

While Warsaw continues to demand the long-awaited - but apparently unattainable - turnaround at the flag carrier, the only real hope appears to be that it will finally offload LOT after years of trying. Legislation allowing the state's stake to fall below 50% is awaiting the president's signature. Both the government and the carrier are "actively" looking for a buyer, Karpinski said earlier in the month, although he cautioned that it is "too early" to talk about who might be a potential investor.

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