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Aeroflot joins race for Czech Airlines

  Russia’s Aeroflot said on Monday it had entered a tender to buy state-owned carrier Czech Airlines (CSA), a small European airline hit by leasing costs as well as the economic downturn.

The Czech government is selling a 91.5% stake in the airline as a global economic slowdown has sapped travel demand, putting airlines under heavy pressure. The finance ministry closed the first round of the sale tender on Monday with bidders asked to file documentation by midday, and said it would release a statement later.

Earlier, Air France-KLM said it would file a letter of interest in order to access the airline’s data, and Czech media reported a consortium of Czech companies Travel Service and Unimex Group had also bid.

The Czech finance ministry has said it hoped to pick a winner by the end of September. Analyst expect the deal to fetch up to CZK 5 billion ($255 million). Bidders need to meet conditions such as keeping CSA’s status as a national or European carrier to prevent the airline losing some of its most profitable routes outside the European Union.

That could happen if the company is sold to a foreign buyer because of bilateral rules that grant reciprocal take-off and lending rights based on the nationality of airlines owners. Non-Czech bidders will therefore have to combine with Czech entities in consortia to fulfill that condition.

Aeroflot said it planned to create a partnership with a Czech or a European company but did not specify which. The government will also assess bidders’ security risks with politicians having voiced concerns Aeroflot may not be an ideal buyer for the Czech carrier from the security point of view as the Russian carrier’s ownership structure was unclear. Aeroflot has not commented on the matter.

Aeroflot has long been on the lookout for acquisitions in Europe, but over recent years has pulled back from plans to buy stakes in European carriers such as Austrian Airlines, Serbia’s JAT Airways and Alitalia.

Aeroflot chief executive Valery Okulov, son-in-law of Russia’s first president, Boris Yeltsin, told Reuters in September the company was eyeing two acquisitions including Czech Airlines.

Air France, which sees itself as a major player in European airline consolidation, said Czech Airlines’ flight network was highly complementary to its own and would enable it to strengthen its position in central and eastern Europe.

Air France described Czech Airlines as a close partner, particularly through its membership of the global SkyTeam Alliance of airlines since 2001.

National airlines in central and eastern Europe face pressure to give up their independence or go bust as the global economic crisis hits demand and competition intensifies.

CSA made a 2008 pretax profit of $550,000 million on operating revenues of CZK 23.2 million. Its management has cut costs and boosted revenue in recent years by divesting non-core assets, such as a catering divisions, and by selling and leasing back planes. (Reuters)