Are you sure?

Malév to save more than HUF 6 billion a year

Malév's business plan contains annual savings of more than HUF 6 billion, which the Hungarian airline aims to achieve by renegotiating supplier contracts, cutting staff, and reducing general costs, as well as through new ways of selling tickets and the cheaper operation of its scaled-down fleet, CEO Martin Gauss told MTI in an interview.

Following 200 layoffs since 2008, a further 300-400 redundancies have to be made, Gauss said. The goal is to bring Malév's headcount, not including staff at its subsidiaries, to about a thousand from the current 1300, he added.

The business plan can only be implemented, Gauss stressed, if the European Union approves the Hungarian government's “rescue and restructuring plan,” which prepares for the airline's restructuring.

The business plan counts on making the airline profitable at operating level - that is, revenue would cover the cost of operation - by 2012.

Malév started implementing the business plan already last year by scaling down its fleet. Instead of five types of aircraft, the fleet now has just two: 18 Boeing 737 Next Generation aircraft, and four Bombardier Q400 aircraft for destinations in the region.

Malév aims to achieve more favorable conditions than earlier by renegotiating its contracts with suppliers. This is made possible because Malév's ownership structure has been settled and its financial position strengthened. The airline has already renegotiated its open invoices with its biggest partner, Ferihegy airport operator Budapest Airport, and agreed on a payment plan.

Gauss said Malév would pay all of its back taxes with the HUF 20.7 billion in cash under the Hungarian and Russian agreement, and there would still be almost HUF 4 billion left over. From this, it will pay a part of what it owes suppliers and finance its daily operations. Of course, Malév also generates revenue for its daily operation, he added.

Gauss would not reveal the size of the financial resources necessary for the airline because he did not want to reveal any information about negotiations still underway. He did say, however, that fresh capital in addition to the almost HUF 4 billion in cash would be necessary for Malév.

Malév's way of selling tickets is getting close to that used by low-fare airlines: price-sensitive passengers are being offered tickets in a cheaper category, but business passengers are being offered prices with a better price-to-value ratio than Malév's competitors. To determine the optimal price, Malév is investing in price management software, Gauss said.

Malév was able to save about HUF 6 billion on costs last year compared to 2008, by reductions in aircraft rental fees and staff, as well as by renting a smaller office space. It cut the number of vehicles in its fleet. Malév closed some foreign representatives and was able to negotiate new contracts with better terms for ground services at foreign airports. The business plan target is that the overall, general costs will be reduced by about 15%.

Gauss said he believed it would be worthwhile to sell Malév's ground services unit Malév Ground Handling (Malév GH) and its maintenance unit Aeroplex only if it serves the long-term interests of the airline. These units raise Malév value, he said, noting that the government aims to privatize the airline again after its restructuring.

Gauss said: Malév is an important company from the point of view of the Hungarian economy and keeping it on its feet serves Hungarian interests. Malév accounts for one-half of passenger numbers at Ferihegy and any other airline would have to produce at least 400% growth to achieve this.

Under the Hungarian and Russian agreement reached on February 26, the Hungarian state acquired a 95% stake in Malév in a debt for equity swap. The Hungarian state did not buy the airline from Russia's state-owned Vnesheconombank, rather it acquired it in large part by taking over its debts. (MTI-ECONEWS)