LOT Polish Airlines – the Saga continues

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In 2012, there were faint hopes that the world’s fastest growing major airline, Turkish Airlines, would take a minority stake in LOT Polish Airlines, Poland’s loss making national carrier. In April last year, Turkish Airlines acknowledged that it was in talks with LOT’s board and the Polish government about a possible purchase. By June, those talks were ended by Turkish Airlines. They said the possible deal would have made a “limited contribution to its medium-to-long term plans”. Read: there’s no long term perspective here.

Things went from bad to worse when, with much fanfare, LOT announced the first flight in the 787 Dreamliner with its enhanced business class product and on board comfort. Soon after launch, Boeing had to recall the 787s for repairs following potentially catastrophic problems with overheating batteries on the planes discovered by All Nippon Airways.

By January 2013, the Polish government warned LOT that it couldn’t make any more losses (haven’t we heard it all before?). “For many years LOT has been treated mildly by the state and that has become the source of its permanent troubles,” Prime Minister Donald Tusk told a news conference.  “We should have done with the idea that LOT should be saved at any cost just because it is called LOT. If it proves that the company is unsaveable, we will not risk taxpayers’ money.” This is just as he announced another loan – a PLN400 million (100 million euro) hand out to keep the ailing airline flying. Think of this like the parent who gives his kid a credit card and tells them after they have run up the credit limit that they will receive no more cash…as he gives the kid another credit card. No credibility.

In February Marcin Pirog, LOT CEO was fired and replaced with the former CEO from three years before, Sebastian Mikosz. Later that month the Polish Finance Ministry suspended deliveries of the 787 Dreamliners citing losses incurred of 2 million Euros on the planes. Last but not least, by last week (April 2013), the government has begun a process of repealing a law that prevents majority ownership of the airline by a private entity.

Once again, LOT may fall foul of the EU Commission who may rule that the subsidy was illegal and against competition rules on State Aids. They have two months to decide on whether they will investigate or not. Last year, the EU Commission cleared LOT for a sale of several subsidiaries which had been subject to a similar state aid investigation since the sale of the subsidiaries were to State entities (in this case the Ministry of Finance). The EU Commission concluded that the sale reflected the real market worth of the subsidiaries and, therefore, it contained no State aid.

The bottom line: the “new” management plan to return a quarter to one third of the fleet back to lessors (including the ageing 767 and 737 jets). Absent the 787 Dreamliner, this would leave LOT with no means of flying passengers on their intercontinental routes and undermining the whole premise that Warsaw could serve as a European hub. By the looks of things, LOT may be headed the same way as CSA Czech Airlines or Malév. The question remains however whether they can survive like CSA or will disappear like Malév. That may very well depend on the EU Commission’s State Aid investigation.

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