Ailing Polish Airline LOT to Shrink
The Polish government plans to reduce the size of its flag carrier, LOT Polish Airlines, by nearly a half as it seeks to make the company profitable again, a cabinet minister said Friday, only days after the airline received a $127 million emergency loan from the state and shed more assets to stay afloat.
LOT said in December it needed state aid because Europe’s economic woes had dented its passenger numbers in the second half of the year. Instead of profits, the airline said it would generate heavy losses for 2012.
Poland gave its national airline the cash on Dec. 21, allowing the company to keep operating. The European Commission may yet rule that the loan is a form of illegal state aid that distorts competition, which would force LOT to return the funds and likely file for bankruptcy.
The government, which holds 93% of LOT’s shares, said it would save the company with a plan to restructure and eventually privatize it, although Prime Minister Donald Tusk said this week it wouldn’t try to save the firm at any price. LOT’s chief executive, Marcin Pirog, was ousted soon after the airline made its request for public aid.
As part of the restructuring, LOT will return nearly half of its fleet to leasing companies and focus only on the most profitable routes and cost-effective airplanes, while another airline, also controlled by the government, will take over LOT’s domestic and some European flights, Treasury Minister Mikolaj Budzanowski told parliament Friday.
“At least 30% or much more of headcount will be restructured, which is already taking place in the first quarter,” he said. “In addition, there will be a fleet restructuring, with the focus on the most effective planes–some 25 of about 40 airplanes LOT has. The rest that are generating losses will be returned. Leasing agreements were signed years ago and it’s not profitable to be using those planes anymore.”
In December, LOT became the first European airline to operate Boeing Co. BA +0.28%’s 787 Dreamliner planes. Using that aircraft, it will service long-haul flights to Asia, mainly China and Japan, and to the U.S., the treasury minister said. Eurolot, in which the government holds 62% of shares and LOT holds 38%, is to service domestic and European flights.
To stay afloat, LOT has been shedding assets, selling its office and hotel buildings and shares in listed companies that it received years ago from the government. It’s in the final stages of talks on selling its stake in Eurolot to a state-controlled agency.
Last month, it sold shares in Petrolot, a jet-fuel operator in Polish airports, to oil firm PKN Orlen PKN.WA -2.10%, also controlled by the government, as well as LOT Catering to DO&CO, an Austrian catering operator.
Part of the Deutsche Lufthansa LHA.XE +0.34%-led Star Alliance, LOT is one of many of Europe’s smaller airlines that face competitive pressure in the European Union’s deregulated market. Hungary’s Malev and others went bankrupt last year, while a number of other airlines slashed jobs.
LOT’s loss last year is now expected to have reached 200 million zlotys ($63.7 million), half the amount of the loan the company received in December. Mr. Budzanowski, the treasury minister, said that until August 2012 it had appeared the company would generate a profit, but in the third quarter it saw “an abrupt reduction, by 20%, of the number of passengers using air transport.”
The company lost about 145 million zlotys in 2011 and 163 million zlotys in 2010. The government last year made a new, unsuccessful attempt to sell the airline.
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The Polish government plans to reduce the size of its flag carrier, LOT Polish Airlines, by nearly a half as it seeks to make the company profitable again, a cabinet minister said Friday, only days after the airline received a $127 million emergency loan from the state and shed more assets to stay afloat.
LOT said in December it needed state aid because Europe’s economic woes had dented its passenger numbers in the second half of the year. Instead of profits, the airline said it would generate heavy losses for 2012.
Poland gave its national airline the cash on Dec. 21, allowing the company to keep operating. The European Commission may yet rule that the loan is a form of illegal state aid that distorts competition, which would force LOT to return the funds and likely file for bankruptcy.
The government, which holds 93% of LOT’s shares, said it would save the company with a plan to restructure and eventually privatize it, although Prime Minister Donald Tusk said this week it wouldn’t try to save the firm at any price. LOT’s chief executive, Marcin Pirog, was ousted soon after the airline made its request for public aid.
As part of the restructuring, LOT will return nearly half of its fleet to leasing companies and focus only on the most profitable routes and cost-effective airplanes, while another airline, also controlled by the government, will take over LOT’s domestic and some European flights, Treasury Minister Mikolaj Budzanowski told parliament Friday.
“At least 30% or much more of headcount will be restructured, which is already taking place in the first quarter,” he said. “In addition, there will be a fleet restructuring, with the focus on the most effective planes–some 25 of about 40 airplanes LOT has. The rest that are generating losses will be returned. Leasing agreements were signed years ago and it’s not profitable to be using those planes anymore.”
In December, LOT became the first European airline to operate Boeing Co. BA +0.28%’s 787 Dreamliner planes. Using that aircraft, it will service long-haul flights to Asia, mainly China and Japan, and to the U.S., the treasury minister said. Eurolot, in which the government holds 62% of shares and LOT holds 38%, is to service domestic and European flights.
To stay afloat, LOT has been shedding assets, selling its office and hotel buildings and shares in listed companies that it received years ago from the government. It’s in the final stages of talks on selling its stake in Eurolot to a state-controlled agency.
Last month, it sold shares in Petrolot, a jet-fuel operator in Polish airports, to oil firm PKN Orlen PKN.WA -2.10%, also controlled by the government, as well as LOT Catering to DO&CO, an Austrian catering operator.
Part of the Deutsche Lufthansa LHA.XE +0.34%-led Star Alliance, LOT is one of many of Europe’s smaller airlines that face competitive pressure in the European Union’s deregulated market. Hungary’s Malev and others went bankrupt last year, while a number of other airlines slashed jobs.
LOT’s loss last year is now expected to have reached 200 million zlotys ($63.7 million), half the amount of the loan the company received in December. Mr. Budzanowski, the treasury minister, said that until August 2012 it had appeared the company would generate a profit, but in the third quarter it saw “an abrupt reduction, by 20%, of the number of passengers using air transport.”
The company lost about 145 million zlotys in 2011 and 163 million zlotys in 2010. The government last year made a new, unsuccessful attempt to sell the airline.
– Follow WSJ’s @EmergingEurope on Twitter
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