Poland struggling to agree flag carrier plans with Brussels

By bne IntelliNews June 12, 2013

bne -

Poland is in the midst of "difficult" talks with Brussels over state aid and a restructuring plan for LOT Polish Airlines, the country's treasury minister said on June 11, raising the urgency for the struggling flag carrier's restructuring programme and hunt for an investor.

"We are in a difficult dialogue" with the European Commission, Treasury Minister Wlodzimierz Karpinski said in a TVN CNBC interview, according to Bloomberg. The Polish government is set to present a restructuring plan to the EU executive on June 20.

LOT applied for a PLN1bn aid package last year. Although infuriated to be asked for yet more cash by a state company that had promised to return to profitability, the Polish government handed over PLN400m to avert bankruptcy. The European Commission handed that loan temporary approval in mid-May, pending the restructuring plan.

LOT's new CEO, Sebastian Mikosz, said recently that the airline may be forced to ask the government for further aid. Karpinski said in the interview that the motion to the European Commission includes a request to boost rescue funds - although he declined to discuss the amount.

While that will further enrage Prime Minister Donald Tusk - who has said the national airline is not sacrosanct - 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 state aid.

Hence, Karpinski - whose predecessor's sacking in April was at least partly prompted by the troubles at LOT - now needs to finally nail down a plan to push the company back into the black. The treasury official said the airline forecasts it will have operating profit in 2014 after posting a loss for the last five years.

One of the ways to achieve that, he added, will be to sell part of the fleet. The company plans to cut 800 jobs and reducing flights - mostly short haul European routes - by a quarter, according to Gazeta Wyborcza. 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 company plans to post net income of PLN68m in 2015, according to the newspaper.

Meanwhile, Warsaw continues to hope it will be able to finally offload LOT after years of trying. Legislation allowing the state's stake to duck below 50% is awaiting the president's signature. Both the government and the carrier are "actively" looking for a buyer, Karpinski said, although he cautioned that it is "too early" to talk about who might be a potential investor.

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