Bloomberg News

Hungary’s Malev Airline Ordered by EU to Repay State Support

January 09, 2012

(Updates with comment from government in fifth paragraph.)

Jan. 9 (Bloomberg) -- Malev Zrt., Hungary’s unprofitable state-owned airline, was ordered by the European Union to repay loans and guarantees to the crisis-hit nation’s government.

The European Commission said Hungary gave Malev financial help from 2007 to 2010 when the company wouldn’t have got financing on similar terms “nor possibly any financing at all” from any private investor “given its consistently difficult financial situation.”

“Hungary now needs to recover the unlawful aid,” the Brussels-based authority said in a statement today. The country must calculate exactly how much aid to reclaim from Malev, said Cristina Arigho, a spokeswoman for the commission in Brussels.

Malev may have to pay back “tens of billions of forint” because of the EU probe, Tamas Fellegi, who was then development minister, said on Dec. 5. The order to claw back state aid coincides with Prime Minister Viktor Orban’s bid to reopen negotiations with the International Monetary Fund and the European Union on a bailout to tackle the country’s plunging bonds and currency.

Hungary’s government “respects” the commission’s decision and wants to ensure Malev’s continued operation, the development ministry said in an e-mailed statement today. The cabinet will discuss the EU repayment decision on Jan. 16.

Hungary is seeking a buyer for Malev after it took a 95 percent stake to replace Russian bank Vnesheconombank as controlling shareholder when a previous privatization failed. Hungary is in “advanced” talks with possible investors in the airline after China’s Hainan airlines withdrew from negotiations, Fellegi said last month.

Government Loans

Malev is still relying on government aid. It borrowed 5 billion forint ($20 million) in December, the government said last month. Hungary also used 8.5 billion forint in budget funds for a Malev capital injection in August, according to a government document.

EU regulators said the unlawful aid to be paid back includes the state’s 2007 takeover of a 76 million euro ($97 million) loan granted to Malev in 2003, a 4.3 billion forint cash facility, deferral of tax and social debt of 13.8 billion forint, capital increases of 25.4 billion forint and 5.7 billion forint, shareholder loans of 14.9 billion forint and the subsequent conversion of part of these loans into Malev shares.

Malev reported a loss of 24.6 billion forint in 2010, versus one of 24.8 billion forint in 2009.

Talks for Hungary’s second bailout in four years broke down last month as the government refused to alter a central bank law that the EU said threatens the monetary authority’s independence.

Government Borrowing

The risk of Hungary failing to reach an agreement with the IMF and EU sent the forint last week to a record low, pushed default risk to a record high and lifted government borrowing costs to the highest level since 2009.

Prime Minister Viktor Orban abandoned all previous objections to a bailout yesterday, telling state news service MTI his government was open to “any kind” of credit line to prop up financing.

Hungary needs to tap international markets in the first half and meet forint financing goals of about 15 billion euros of payments due this year, according to data compiled by Bloomberg.

--With assistance from Edith Balazs in Budapest. Editors: Peter Chapman, Heather Smith

To contact the reporter on this story: Aoife White in Brussels at

To contact the editor responsible for this story: Anthony Aarons at

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