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Hungary chooses KrasAir for final talks to buy Malév Airline - extended

Hungary selected AirBridge Zrt, a local investment vehicle for OAO KrasAir, over a Lithuanian competitor for final talks to sell its unprofitable state airline Malév Zrt. AirBridge expects to sign Malév purchase agreement next month.

The government's asset-sales agency ended talks with Lithuanian airline FlyLAL Group because of „a lack of financial guarantees,” it said in an e-mailed statement yesterday. FlyLAL, which has former American Airlines Inc. Chairman Robert Crandall in an advisory role, offered €120 million ($156 million) for Malév, Dávid Keresztes, the company's Hungarian representative, said January 23. The offer included the acquisition price, restructuring costs and future investment, as well as debt assumption, Keresztes said. Hungary earlier ended talks with Ofer Hava, an entrepreneur in a group with former Aer Lingus Chairman Tom Mulcahy, and ruled out Sky Alliance Zrt, a group of former Malév employees.

Hungary invited bids for Malév in September, its seventh attempt to sell the carrier, after failing to agree with OAO KrasAir in August 2005 amid calls from labor unions and politicians it was being sold for too little. The government has spent Ft 16.2 billion propping up the airline in the past six years, yet it hasn't posted a profit since the 1990s. The Budapest-based carrier has Ft 30 billion ($152 million) of debt. Malév, founded in 1946, is struggling because of competition from budget carriers like EasyJet Plc and Ryanair Holdings.

„We expect to sign the contract in the first half of February,” Pyotr Leonov, a board member of AirBridge, said in a telephone interview from Budapest today. „We plan to make the company profitable in one and a half years and by 2015 to triple the company operations.” Kommersant, a Russian daily, said today that AirBridge agreed to pay €160 million ($206.4 million) for the company. Leonov declined to confirm the figure, saying that he's obliged not to disclose the sum until the contract is signed. Abramovich, who heads an alliance of five Russian airlines called AirUnion, bid for Malév through AirBridge, a Hungarian holding company in which he owns 49%.

AirUnion, led by KrasAir, Russia's fifth-largest airline, last year flew 3.3 million passengers, 4% more than in 2005. „AirUnion will feed a few hundred thousand passengers to Malév operations a year,” Leonov said. „In turn, Malév opens up the market of western Europe for AirUnion.” Malév is scheduled this year to join the Oneworld alliance of airlines led by AMR Corp.'s American Airlines and British Airways Plc. Other Oneworld members include Qantas Airways Ltd., Cathay Pacific Airways Ltd., Iberia Lineas Aereas de Espana, LAN Airlines SA and Finnair Oyj. „After Malév enters the Oneworld alliance in two months, it will open up all of its network for AirUnion,” Leonov said. (Bloomberg)