Malév on sale for 7th time
Thursday, August 3, 2006, 10:34
Malév Zrt, Hungary's unprofitable national airline, is going back on the auction block as the government tries to rid itself of the debt-laden carrier for the seventh time since 1989. The state asset-sales agency in Budapest will set out a timetable for the sale in coming weeks CEO János Gönci said Malév is leaner and more attractive than before after cutting 50% of its workforce and as the airline prepares to join British Airways Plc's Oneworld group. "Everyone expected Malév to go bankrupt and they were all surprised when that didn't happen," Gönci, said in an interview at Malév's headquarters in Budapest. "A professional and well-capitalized majority shareholder would be our future." Hungary spent Ft 16.2 billion ($76 million) strengthening the airline over the past six years, yet Malév is still about Ft 30 billion in debt and hasn't posted a profit since the late 1990s. The airline is struggling because of surging fuel and labor costs and competition from low-cost carriers like EasyJet Plc and RyanAir since Hungary joined the European Union in 2004. The government hopes its sale of Budapest's Ferihegy Airport for £ 1.26 billion to London-based BAA Plc last December will help lure a buyer for the carrier, the airport's biggest customer. National daily Népszabadság
reported this week Malév would be put back up for sale in early September.
Alitalia SpA of Italy bought 35% of Malév from the government for $77 million in 1992, only to sell the stake to two Hungarian banks for $65 million five years later. Hungary's most recent attempt to sell Malév, a year ago, was canceled after the government failed to reach an agreement with KrasAir, Russia's fourth-largest carrier. Labor unions and politicians complained the carrier was being sold for too little. The previous sale processes were politically charged, said Anita Mosner, executive vice president at US-based GCW Consulting, an aviation adviser in Arlington, Virginia. Politicians during earlier auctions have not consistently supported the tough decisions. Malév's future owner will be saddled with debt, the challenge of streamlining the airline's fleet, now made up of four different types of plane, and competing with low-cost carriers. Discount carriers have whittled Malév's market share from 59% in 2003, before Hungary joined the EU, to 40% now.
Gönci said the numbers are looking better after passenger count rose 14% in the year so far. CSA AS, the Czech Republic's national airline, said Aug. 1 it carried 6% more passengers in the H1. Malév reduced ticket prices by 4% last year to compete and expects another 3% cut next year. "Of course it affected the price level in several destinations, but the no-frills airlines did generate extra traffic and now we are flying to destinations not flown to before," he said. Gönci, who flies his own six-seater plane in his leisure time, took over as CEO in February 2005 and spearheaded projects that reduced costs by as much as 5%, including cutting jobs to 1,600 from 3,200 in the past 18 months. "Malév doesn't need a buyer to survive," Gönci said. "It's a well-established airline that is close to breaking even."
The airline, which posted its highest-ever loss of Ft 13.5 billion in 2003, still expects a shortfall of "several billion forint" this year, Gönci said. Among the potential bidders for Malév this time round is a group of investors including Gönci in addition to another offer by KrasAir. Malév is attractive for KrasAir as a gateway to Europe, and with more and more Russians choosing to fly, Malév offers its established European network, said Michael Ganelin, an analyst who covers KrasAir at CentreInvest Securities in Moscow. "As for selling Malév it's a political question," Ganelin said. "The authorities don't want to sell but from an economic view they can help their economy recover." (Bloomberg)