Poland planning bailout for LOT

By bne IntelliNews December 13, 2012

bne -

Poland is working to put together a bailout package that will avoid EU suspicion for struggling flag carrier LOT Polish Airlines, the treasury ministry announced late on December 11, as Europe's national airlines continue to struggle to keep their heads above water.

"The current, very difficult situation on the airline market in all of Europe requires quick action in relation to this company," the ministry said in a statement, reports the Wall Street Journal. It added that it will also implement a restructuring programme, which is part of plans to yet again attempt to privatize the company.

LOT has filed a request for public aid, the first tranche of which would equal PLN400m (€98m), the ministry said. Local media reported that the airline could be seeking up to PLN1bn in total. LOT, which was on the brink of bankruptcy in 2009 after failed fuel-hedging deals, lost money in 2011 and is expected to post another loss for 2012. However, it is not clear how the aid will be structured to avoid breaking EU regulations.

Hungary's Malev airline went bust in February after Brussels ordered it to pay back hundreds of millions of euros of state aid that broke its competition rules. However, in September the European Commission approved a package worth €100m handed to Czech Airlines (CSA).

Bailing out airlines is likely the last thing Warsaw needs as it struggles to introduce stimulus for a slowing economy at the same time as trying to meet to ambitious fiscal consolidation targets. However, after seeing promising talks with Turkish Airlines for the privatization of LOT break down earlier this year, it may have little choice - already shaky confidence in the economy hardly needs a collapsed flag carrier.

With that in mind, Treasury Minister Mikolaj Budzanowski said that while he supports the bailout, LOT should sack CEO Marcin Pirog, who had earlier claimed that the company was in good condition, reports Reuters. "The chief executive is personally responsible for the state of the company," the minister said. "He managed the company and oversaw a restructuring process that was not conducted in a proper manner over the last two years."

With the Eurozone crisis only antagonizing the problems in the sector, a host of struggling European flag carriers is competing to find a strategic investor. The list of potential European buyers looks extremely short however, leaving most of the speculation to surround a handful of airlines from the Middle and Far East - including Turkey's flag carrier - who are believed to be hunting for a European hub.

Gulf carriers have been on an acquisition spree recently, with Abu Dhabi-based Etihad Airways picking up stakes in four airlines this year, including Air Berlin and Virgin Australia. For its part, Qatar took a 35% stake in Cargolux in 2011.

However, EU rules bar airlines from being controlled from outside the bloc. A minority stake would clearly not be a sufficient base on which to establish a continental hub. According to press reports, it was that stipulation that collapsed the deal to sell LOT to Turkish Airlines.

Meanwhile, Qatar Airways admitted its interest in the privatization of CSA on December 11, but said it is yet to decide whether it will bid for the Czech flag carrier. Prague also claims that Korean Air is interested in the asset, which in October it announced it would try to offload yet again.

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