PETER BENNETT VIENNA
After decades in state ownership, privatisation could finally be on the cards for eastern Europe's airlines.Eastern European airlines, dogged by government procrastination, bureaucracy and stalled privatisation plans, may be about to see a change in their fortunes.
Privatising the region's carriers has been slow and painful and is only now being realised. Yet the reasons why they are still in public hands differ around the region. They perhaps reflect the general privatisation strategies of each country more than the decline of the region's airline industry as a whole.
Each state has attempted to sell its airline as it would any other industry, seeking to privatise it as an asset rather than a more fluid operating concern. Balkan Bulgarian was sold to the Israeli group Arkia in June this year. And if everything goes according to plan, the majority of eastern Europe's airlines will be under foreign ownership by the end of next year.
The state-owned Hungarian airline Malev is another example. Hungary, among the first and keenest privatisers, happily opened its doors to foreign investors. It sold a 30% stake in Malev to Alitalia in 1994, but the timing was bad. Alitalia was about to enter a period of financial turmoil which would result in a government sponsored bail-out, followed by an instruction from the European Union (EU) to shed the Malev stake.
"Alitalia was not the right partner," adds Ed Smick of SH&E, which is advising the Hungarians on a second privatisation of Malev. "There was not a lot of equipment compatibility nor could they realise the savings in operations, maintenance or training."
The failure of the Alitalia partnership could have cost Malev dear. Only now is it completing a fleet overhaul and getting its eastern European route network up and running. In the meantime, Austrian Airlines has grabbed critical market share in the south-east Europe region and renewed its fleet.
Malev's future will almost certainly lie in a global alliance, acting as a feeder to a larger carrier using Budapest as a minihub for operations into south-east Europe.
In Prague, meanwhile, clashes of personality and the failure to develop potential savings were widely blamed for the failure of Air France's alliance with CSA Czech Airlines which led the French carrier to sell its stake back to the state in 1996. The Czech Government now says it is looking for a strategic investor to guide CSA into a global alliance but this may be more problematic than with Malev. While Prague can now attract hundreds of thousands of economy class tourists, few multi-national corporations have set up in the Czech Republic, making it difficult to fill business class seats.
And while Malev and Polish airline Lot have natural expansion routes which will attract global alliances (south-east Europe, and the Baltics and Russia respectively), CSA has no natural market it can grow into. The fear for CSA is that it will end up as little more than a second tier feeder for a bigger airline.
Another reason why airlines have remained in state hands is because politicians often see their flag carriers as a national jewel.
Eberhard von dem Bussche of consultants Treuhand Osteuropa in Germany says: "Politicians always consider an airline as something to be proud of. This is a misconception. It is just something to commute on like a train or a car, but politicians are not always prepared to accept this and so they throw tax-payers money out of the window."
Lot is a case in point, reflecting the broader privatisation strategy of the government. Delays, postponements and state-sponsored muddle are elements of most privatisations in Poland - during the 1990s four attempts to sell Lot failed.
Poland is a large country with good economic prospects. It could also be an EU member within the next seven or eight years and has a large émigré community keen to see the old homeland.
All this makes Lot better placed for privatisation than CSA. Consequently, it will almost certainly join one of the global alliances early next year, ahead of CSA, when a 35% stake will be sold to a strategic buyer.
Balkan Bulgarian and Romania's Tarom are not so lucky. Neither country's economy has recovered sufficiently to warrant large numbers of multi-national corporations nor attract bulk tourism. Balkan Bulgarian is the better placed of the two following its privatisation, which immediately saw Arkia promise to invest up to $100 million. Even here, however, the carrier is still struggling to attract demand.
Tarom is lagging behind. Von dem Bussche says there will not be many carriers around interested in buying into the Bucharest-based carrier. "Will the government accept that the buyer will have to cut back the services to nothing more than a feeder airline for a larger hub?" he asks.Only then will it begin the long journey to recovery.
Source: Airline Business
