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Lithuanian Airline to expand in East Europe after Hungarian bid

FlyLAL, the Lithuanian carrier sold by the government in 2005, is looking to further expand in eastern Europe following its bid worth €120 million ($156 million) for Hungary's national airline Malév Zrt.

Owners of Vilnius-based FlyLAL are seeking acquisition targets or potential partners in Russia, Ukraine and the Balkans to complete a network serving the region within three to seven years, said Dávid Keresztes, the company's Hungarian representative. Hungary's government will pick either FlyLAL or a bid by OAO KrasAir owner Boris Abramovich for Malév by the end of the month in its seventh attempt to sell the company since the end of communism. Hungary has spent more than Ft 16 billion ($82 million) propping up Malév as the unprofitable company struggles with debt and competition from discount carriers. „The idea is to develop a regional airline,” Keresztes said in a phone interview today. „That would include a partner or acquired airline in all the key sub-regions of Russia, Ukraine, the Balkans and the Baltics.” FlyLAL, which has former American Airlines Inc. Chairman Robert Crandall in an advisory role, is looking to benefit from air traffic in eastern Europe growing three times as fast as in the West, according to the company's estimates. The Lithuanian company's bid for Malév includes the acquisition price, restructuring costs and future investment, as well as debt assumption, Keresztes said.

The investor group that owns FlyLAL includes UAB Fima, an industrial automation and security company, UAB Sanitex, a distribution company and UAB ZIA Valda, an investment company. They are in talks with other financial investors to join the Malév bid, Keresztes said. Malév would serve as the group's hub for long-haul flights toward India, the Far East and North America. FlyLAL is counting on a 261 million-euro development plan by Budapest Airport owner Hochtief AG to provide infrastructure for its flights and increasing traffic, according to Keresztes. FlyLAL would gradually add to Malév's four long-haul flights to New York, Toronto, Bangkok and Beijing, and use other airlines in the group to feed passengers. Lan Airlines SA of Chile and Taca International Airlines of El Salvador are models for Malév, while the Budapest hub, where the Hochtief plan would increase capacity to 25 million passengers a year from 6 million, could play a role like Zurich, Vienna or Copenhagen, Keresztes said.

„Budapest has unlimited build-out potential,” he said. „We have been in touch with Hochtief and their development plan from an investment standpoint is the grounding for our plan.” That strategy, along with the planned restructuring and savings may erase Malév's losses in about 18 months, Keresztes said. Investors would then look to sell shares in company through the Budapest Stock Exchange (BÉT) in three to seven years, he added. The financing plans are similar for all targets. The main competition would be SAS AB, which collects passengers in Scandinavia and the Baltic countries and channels them through Copenhagen for long-haul flights. Rival Czech carrier CSA AS also uses its Prague hub for east European travelers, Keresztes said. FlyLAL had sales of €71 million in 2005 as it carried 542,000 passengers to 28 direct destinations. The company's fleet of 10 planes includes five Boeing 737 jets, making it compatible with Malév which recently bought 18 of the same aircraft. The investors plan to continue to rely Boeing Co. jets, adding a few larger planes for Malév's planned long-haul flights and using new turbo-propeller craft for shorter routes, Keresztes said. „One of the main issues is the fleet,” Keresztes said. „We need to harmonize the fleet first with itself, then with the rest of FlyLAL. On the long-haul routes, we will look to phase in a bit larger jets to make them more profitable.” (Bloomberg)