This week the under pressure from the Polish Government, the Supervisory Board of Poland’s LOT Airlines dismissed CEO Mr. Marcin Pirog for poor financial results at the national carrier, which reportedly has lost $US 37 million in 2012, which actually and sadly is one of its better performing years, though last year LOT estimated a $US 16 million profit for 2012 and obviously was too optimistic.
It is time to let these failed airlines go bankrupt, no more state aid if you do not bring on board professional airline executives, no more political cronies the only chance these airlines have is with good management, and LOT and Czech Airlines need western executives at the helm, the locals have not changed anything since the fall of communism, and risk loosing their prized national flag carriers.
These Eastern European national airlines cannot get their act together, and once again the hand is out for state aid. It is time to stop these drains on tax payers money trying to keep national airlines afloat that are NOT viable because senior executives are government appointees usually with zero airline experience and not enough leadership, communication and business skills to make real change. The airlines need a visionary, someone who knows the industry in and out and is able to see events changing the industry and be proactive in countering those events. All of these Eastern European airlines watched as LCC (low cost carriers) like Wizz, SkyEurope, Ryanair, etc. are away at their market. Yet these Eastern European airlines had to cost structure to compete and chose to ignore the threat till it was too late.
Having spent many years in Eastern Europe, working with local airlines, I have witnessed the decline of wonderful national flag carriers with long histories to bankruptcy (ie. Malev-Hungarian Airline in 2012) to airlines barely holding on thanks to government bailout money, and it is all due to poor management, simple as that. The airline executives are political appointees and they bring with them teams that are not experienced in aviation and sometimes just not experienced in anything other than political games and greasing palms, yes corruption is still wide spread in Eastern Europe at many levels.
This latest change at LOT Airlines sees the 10th CEO to leave the airline in 12 years, in which the airline has lost a combined PLN 2.8 billion (roughly $US 890 million). Now the airline will be run by CEO #11 who actually was the CEO of the airline between 2009-2010 but was also dismissed for poor performance, Mr. Sebastian Mikosz will really change little, they’ll talk about a “new” restructuring plan that will see the airline profitable in a short period etc. but without leadership, LOT will not change on its own, it needs to change on the inside, otherwise all this talk and money is useless just cosmetic changes, but ultimately LOT is finished ! hire outsiders who can make real changes and it has a chance.
There is no hiding the fact that many European airlines are in trouble and not just in Eastern Europe. But Eastern Europe emerging from decades of communism has not shaken the grips of political interference in running its airlines. These ‘political’ positions are about rewarding certain people in certain political parties, who then will reward the political party with ‘donations’ and other favors.
There is NO place in the tough European airline industry of today for politics , it is throw back concept from the days of Marxist-Leninism when these countries were run by political elites who expected allegiance and favors from all those around them. The airlines is where all good loyal communist went to work, it was the best job, got to travel, see how the westerners lived and lots of internal politics as no place was more watched and infiltrated by secret police than the airlines.
Now is the time to put people at the top that deserve to be at the top and stop government interference in the running of these airlines, I have seen bankers, ex-ministers, ex-secret police and in-experienced executives in high positions and no one should wonder why the airlines are in trouble in Eastern Europe.
In Hungary, Malev Airlines went bankrupt in February 3, 2012, after years of losing money and changes to top management. Between 1999 and 2012 the airline only made money twice in 1999 and 2005. To their credit they did bring in Mr. Martin Gauss as CEO from Germany but by then it was too late, he is now CEO at another failing airline, Latvia’s Air Baltic which also is facing EC investigations about state aid and it could be shut down like Malev was if ordered to repay all aid.
Malev received around Euro 386 million ($US 482 million +/-) in loans and capital increases from the Hungarian Government between 2007-2011 the European Commission found this financing to Malev constituted illegal state aid.
The EC then ordered the Hungarian Government to recover the money from the beneficiary, Malev Airlines on January 9th, 2012. With no ability to repay the “loans” the airline was forced into bankruptcy, and the national airline of Hungary disappeared, as has in the past few years the national airline of Switzerland (Swissair), Belgium (Sabena), Greece (Olympic), Bulgaria (Balkan), etc.
Presently, there are several major national airlines on the verge of bankruptcy, all receiving or waiting for government state aid so they can restructure again and again, and hope and pray they find a “white knight” on that may acquire them and rescue them from what is certain bankruptcy at some point in the near future. I will touch on each of these briefly.
- LOT Airlines
- CSA Czech Airlines
- Croatia Airlines
- JAT Airways (Serbia)
- Air Baltic (Latvia)
- SAS (Denmark, Norway, Sweden)
- Adria Airways (Slovenia)
- Aer Lingus (Ireland)
- Air Malta
- South African Airways
In the Czech Republic, CSA Czech Airlines will celebrate its 90th anniversary this year, and maybe one of its last. This airline has been struggling for years with poor leadership and a ill thought out strategy that has seen the airline shrink to about half its size of 4 years ago.
Probably the worst airline for political interference in the above list, and it started with ex-Defence Minister Jaroslav Tvrdik replacing Miroslav Kula and lifetime CSA employee. The young ex-Minister had no experience and the airline failed to reach its potential, expand it long haul and capitalize on Czech Republic’s new inbound traffic boom, leisure market expansion and EU entry.
Then comes another political appointee, Mr. Radomir Lasak an ex-banking executive of a failed bank but well connected politically, in fact bankers did well during the days of Czech privatisation, when it was a free for all, privatisation of state holdings, lots of loans, few re-paid, massive bank debts, lots of people made quick bucks, especially bankers. Under Lasak, restructuring began, new people brought in that knew little of the industry, a young strategist and a marketing executive with no aviation experience who hated billboards ! and off course operating losses continued, but the company showed a net profit by selling its catering and cargo divisions, sale leasebacks on B737-500’s which allowed the new management team to receive big bonuses for the “profit” the airline was able to produce !
Then under Mr. Miroslav Dborak and now ex-banker again Mr. Philippe Moreels, the airline hoped to shrink its way to profitability, cut all flights to North America, sold Heathrow (London) slots, cancelled many important routes from London to Zurich and opened up routes to Russia.
Well that failed and now the airline is getting $US 130 million to restructure again ! after agreeing to a 5 year restructuring plan that includes selling subsidiaries (not much left, maintenance, ground handling, training), aircraft and other assets ? Smoke and mirrors ! the airline has no business model, it has no real management and will fail if that does not change.
The airline is leasing in a long range A330 to serve Seoul, South Korea as maybe Korean Airlines is interested in buying CSA Czech Airlines they say, as is Qatar Airways ?
So in order to look attractive the airline is going all Airbus/ATR, and opening up new and old routes to Munich, Zurich, Nice and Perm.
I need to point out something here as we look at airlines in trouble. It is a recurrent “fantasy” by almost all of the troubled airlines that a “white knight” is interested in their airline, one hears Lufthansa, Turkish Airlines, Etihad (Abu Dhabi), Qatar Airways over and over again, yet reality on the ground to those who know the industry is something totally different.
The reality is Lufthansa today has its own problems with its European network under attack by LCC (low cost carriers) mainly Ryanair, EasyJet, Wizz and its Austrian Airlines is bleeding badly, so NO acquisitions by Lufthansa for some time.
Turkish Airlines is growing by leaps and bounds and has rejected LOT Airlines already, as well as JAT Airways.
Etihad Airways has been buying airlines, having bought minority shares in Air Berlin, Air Seychelles, Aer Lingus and Virgin Australia so do not expect more acquisitions in Europe till Air Berlin starts making money.
Qatar Airways, just sold its 35% share in Luxembourg based cargo airline Cargolux, and it is always eyeing opportunities but not buying. In fact it’s very out spoken CEO, Mr. Akbar al-Baker recently said “yes we are studying Czech Airlines, there are no talks yet, we are not talking to anyone”, yes Czech Airlines is talking up the interest by Qatar Airways but it does not look very promising it is just PR to show the public that current management is doing something to keep them employed for a little longer.
When any airline is up for sale around the world, many airlines want to take a look, a MOI (Memorandum of Information) gives you lots of information not only about the airline but the market as well, and is a great way to get get intelligence. Just because an airline says its interested in looking at an airline, the chances are slim, so few M&A activity in the global airline industry today.
Reality is that why would anyone want to buy CSA Czech Airlines, it is in debt, small network mostly Russia oriented, poor moral, bad corporate culture, there is little of interest in the airline and so many more interesting airlines in trouble you can buy.
To buy CSA Czech Airlines, you would HAVE TO replace the entire management team, get rid of the cancer that has inflicted the airline with so much grief, hardship and destruction of shareholder value.
So, let’s return to the troubled airlines seeking state aid.
Croatia Airlines is getting Euro 106 million ($US 130+ million) injection of funds, a few months before its July 1, 2013 admission into the EU as its 28th member state as a means to avoid strict EU competition regulations.
At JAT Airways, will become JAT Serbia Airways on March 31, 2013 and the government has decided to inject money into the airline for new A319/320’s and ATR-72-600’s since it has had no takers for its sale for several years, and will try again in 2015 to privatize it.
Air Baltic in Latvia was almost bankrupted by former CEO Bertolt Flick and changing its strategy away from being an east west hub that saw ASK’s grow by 67% between 2003-2008 and RPK’s by only 43%. Now under former Deutsche BA and Malev CEO Martin Gauss the airline is implementing a restructuring plan dubbed “ReShape”. The airline has received $US 106 million from the Latvian Government, which the European Commission is now investigating. This airline, is for sale and so far no takers, and such an airline has NO business ordering the Bombardier CSeries airliner, having ordered 10 + 10 options, I think it shows how desperate Bombardier is for CSeries orders, more on that in another blog.
At SAS (Scandanavian Airline Systems), which has been in some form of restructuring the past 10 years or so having made money in only 2 of those 10 years. This is really the last call for SAS, it will receive around $US 500 million from banks secured by its government stakeholders to try another restructuring, oh there have been so many. Finding a buyer is not an option, so its now or die for SAS.
At Slovenia’s Adria Airways, the airline is facing a EC investigation in regard to its recent $109 state aid package, which is huge for an airline that has only 12 aircraft (3 x A319/320, 5 x CRJ’s and 4 CRJ-900’s). The airline has been losing for money for some time and its small market and tough competition from LCC’s and Austrian makes this restructuring a last call as well. If the EC finds it is being unfairly supported by the state, it faces re-payment which means it is done.
In Ireland, Aer Lingus the beneficiary of several government hand outs is facing another attempt by LCC Ryanair to acquire it. The last attempts have been blocked by the EC on competition/monopoly grounds, this time Ryanair has brought in FlyBE as a partner who would take over 20+ of the routes and keep competition on those routes which may convince the EC to allow Ryanair’s acquisition, we shall know soon.
In Malta, national airline Air Malta was given in June, 2012 the green light by the European Commission for a state aid package worth $US 162 million to help restructure the struggling airline which is in good hands with CEO Mr. Peter Davies, an industry veteran who is surely going to need all his years of experience in making the national airline viable in the long run.
Lastly and sadly, South African Airlines (SAA) the darling of Africa is in BIG trouble. The South African government has just announced $600 of funding for the next 2 years in a bid to help the ailing carrier survive. The past year I have been reading in articles how good SAA is and how wonderful it’s CEO is, but magazines aside, one needs to look deeper at the financials. The airline blames the decline on rising fuel and lower passenger numbers from the global economic slowdown, that is the reality for ALL airlines, a good CEO needs to manage all risks. The CEO Mrs. Cheryl Carolus resigned recently along with 7 board members, who blame the government for bad relations between the two. No figures for 2012 have been released but the loss will be HUGE and should raise concerns about other African airlines financial situation.
It is obvious that in 2013-2014 we will see several national airlines go bust, it is time that the weak make room for the strong. State aid distorts competition and only hurts those airlines that have no government backing and survive and prosper on good management, strategy and resource planning.
Airline management is not easy in these very trying times, but if there is one common factor that successful airlines have is that they have a good strategy, positioning, value proposition and excellent senior management that can turn business plans or restructuring plans into reality. Most of the above troubled airlines have had many restructurings and cash infusions, BUT have not been able to turn plans into action and results, and here a great Senior management team is crucial, but you will not find those people in countries that have had only 1 airline, because any experience comes from that 1 airline and they have only 1 benchmark and if that benchmark is a money loosing airline then they cannot think outside that box.