LOT in 2013: emergency loan, fleet to be nearly halved, etc.

[Stratofreighter]

December 16, 2012 6:25 pm

Poland’s Lot airline was supposed to be ending the year with a 52m zlotys ($16.8m) net profit.

Instead, the state-owned carrier has had to rush to the Treasury ministry for a handout just to keep its aircraft flying through Christmas.

The aid request at the beginning of last week stunned the government, which owns 68 per cent of the airline, and a furious Mikolaj Budzanowski, treasury minister, called for the head of chief executive Marcin Pirog, blaming him for the debacle.

Mr Pirog, who had served just over two years – longer than the average for Lot chief executives in recent years – was removed by the board.

But a simple change at the top is unlikely to save Lot.

The airline has asked for 1bn zlotys in aid, and the full amount of help could come to 1.5bn zlotys.

“This is an unbelievable sum,” says an aviation expert. “The airline only has revenues of about 3bn zlotys.”

He says that without an immediate cash infusion, Lot will fail to pay its bills for fuel, airport fees and salaries.

“People knew it was bad, but no one had any idea things were this bad.”

Mr Pirog told a parliamentary committee this year that the airline – which lost 145m zlotys in 2011 – was on course to turn a profit.

All seemed well in November, when LOT staged a celebration as it became the first European airline to take delivery of Boeing’s new 787 Dreamliner.

LOT has put some of the blame for its troubles on a fall in business-class sales because the financial crisis is prompting many people to fly economy instead.

But the airline faces deeper structural problems, something with which many other small flag carriers are struggling.

Malév, Hungary’s national airline, stopped flying this summer,
while Czech Airlines received approval for a €100m restructuring programme from Brussels and is being touted to Korean Air and Kuwait Airways.

Lot is still trying to be a full-service airline, offering long-haul flights to destinations such as Toronto, Chicago and Beijing while flying shorter national and European routes.

“In this day and age, not every airline can do everything without subsidies,” says Aleksander Domaradzki, managing partner of DGL Polska, a consultancy.

Lot faces competition at the bottom end from carriers such as Ryanair and Hungary’s Wizz Air, while airlines such as Lufthansa siphon off higher-end Polish travellers.

The most viable solution would be to sell Lot, but a law reserving 51 per cent of the shareholding votes for the government makes it an unattractive partner for a potential European buyer.

The Polish government has held out hopes that Turkish Airlines or Air China might rescue the airline, but European Union rules barring non-member-state carriers from taking more than a 50 per cent stake in any EU airline make that sort of transaction unlikely.

“It seems the normal course of events is for an airline to be brought to the brink of bankruptcy before politicians react,” says the aviation expert.

“The same happened with Belgium’s Sabena, Alitalia and Austrian.”

[Stratofreighter]

http://blogs.wsj.com/emergingeurope/201 ... to-shrink/

January 4, 2013, 1:39 PM

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-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.

[Stratofreighter]

February 1, 2013, 2:24 PM.

Polish Leader Turns Up Heat to Fix LOT Airline

Polish Prime Minister Donald Tusk turned the screw tighter on his treasury minister Friday
by saying the official’s job and place in the cabinet depended on
putting the country’s troubled flag-carrier, LOT Polish Airlines, on secure financial footing.

Mikolaj Budzanowski, who has been treasury minister since November 2011,
is responsible for managing state-controlled businesses and pushing on with a privatization drive to sell hundreds of small companies as well as billion-dollar stakes in larger ones.

He has been more focused on shepherding the development of shale gas in Poland and large energy-related infrastructure investments.
One of his deputies, Rafal Baniak, was delegated in 2011 to oversee LOT, according to the ministry’s website.

Tension between the prime minister and Mr. Budzanowski first broke into the public sphere a week ago,
when Mr. Tusk told journalists Mr. Budzanowski’s handling of LOT wasn’t satisfying him.
Now the prime minister has gone further, giving the minister an ultimatum.

LOT is in the process of getting a government bailout and needs to slash at least 30% of the nearly 2,100 jobs.

It’s unclear whether the government will have the stomach to hand so many people pink slips amidst an economic slowdown.

See http://blogs.wsj.com/emergingeurope/201 ... ot-airline for additional information.

[planefixer]

Looking on the bright side, at least they can get a lot of cash [excuse the pun ] from Boeing for having to park up their Boeing 787s...

[Stratofreighter]

http://www.flightglobal.com/news/articl ... st-383841/

Polish treasury to recover LOT 787 grounding cost

4 hours ago

Poland's treasury ministry has insisted that flag-carrier LOT must be compensated for the Boeing 787 grounding, during an extensive parliamentary session in which the cost was estimated at $50,000 daily.

Treasury minister Mikolaj Budzanowski, while updating the Sejm on 22 March, suggested the total cost could reach 50 million zloty "or more" - around $15 million - and said this amount "must be returned to the company in the future".

LOT had been planning to "exit the forest" of its financial crisis following the introduction of the 787, he said: "They bring real profitability to this company."

Jaroslaw Zaczek of the Solidarna Polska party, in a response, put the cost of the 787 grounding at $50,000 per day.

The grounding in mid-January came as LOT realised another heavy full-year loss,
and Budzanowski stated that, in December 2012,
the government was considering whether to rescue LOT or allow it to file for bankruptcy.

Budzanowski acknowledged that the public had a "right to know" about the airline's situation and the rescue effort, which centres on a restructuring programme and includes a 400 million zloty loan.

He explained that 131 measures were being implemented, to save some 150 million zloty, including an initial shedding 385 staff.

"This year will be painful for this company. It will also be painful for all its suppliers. But there is no other choice."

While he said that certain aspects of LOT's situation were "difficult to predict", he nevertheless pointed out that the airline had been unable to "respond adequately" to changing markets and lacked a sensible strategy.

The rising cost of fuel, as well as a weakening of the zloty, had contributed to the crisis,
while LOT's fleet - particularly its Embraer regional jets, with their limited capacity -
had consequently become economically less efficient.

LOT agreed to acquire over 20 Embraer jets in 2003 and 2007, said Budzanowski, but returning them to lessors would cost the company over 120 million zloty.
He also pointed out that LOT spent another 200 million zloty in 2012 relating to the acquisition of the 787s.

Parliamentary member Tadeusz Aziewicz, of the liberal-conservative Civic Platform, responded by saying that LOT's predicament would hamper the search for a private investor,
and that rapid privatisation "might not be possible".

"I am fully aware that spending public money on saving a business is a very painful event which always raises questions, both economic and ethical," he added.

During the debate, Ryszard Zbrzyzny of the SLD party highlighted that LOT only owned three aircraft in its fleet of 46 -
with even these likely to be sold -
while Ruch Palikota member Bartlomiej Bodio described the airline as a
"colossus with feet of clay, badly managed, without property, a strategy and even without aircraft".

Other political representatives questioned the wisdom of spending large sums on consultants and the depletion of financial gains raised through the sale of assets,
including 450 million zloty from the sale of its landmark hotel in central Warsaw.

Jaroslaw Zaczek expressed concern that the Polish taxpayer could end up contributing 1.5 billion zloty to LOT, pointing out that the carrier is heavily indebted -
and fortunate to be state-owned.

"If the creditors were private companies," he said, "they would have already applied to the court for bankruptcy."

[Stratofreighter]

http://www.ch-aviation.ch/portal/news/1 ... reamliners

Apparently Norwegian is interested in a possible acquisition of LOT and its' new Boeing 787s...