(Updates with budget, IMF in third, seventh, eighth paragraphs.)
Feb. 9 (Bloomberg) -- Hungary will liquidate Malev Zrt. in the “near future” and is seeking a compromise with Budapest Airport on compensation payments stemming from the collapse of the state-owned carrier, the Development Ministry said.
“Malev’s liquidation can start in the near future once a court concludes that the company is insolvent,” the Development Ministry said today in an e-mailed response to questions. The government, which is in “continuous negotiations” with the airport management, is “seeking a rational, manageable compromise,” the ministry said.
Malev, weighed down by debts of 60 billion forint ($275 million), halted flights on Feb. 3 after 66 years in operation. Potential compensation payments linked to the carrier’s demise threaten the country’s ability to cut the budget gap to below 3 percent of gross domestic product this year.
While Malev’s liquidation “doesn’t directly trigger legal consequences,” according to the airport privatization contract, the expected decline in airport revenue may force compensation payments in an “extreme case,” the ministry said. German construction company Hochtief AG owns 50 percent of the airport.
“The exact amount may depend on several factors, but can reach several hundred billion forint,” the ministry said.
Plunging revenue as the result of Malev’s collapse may trigger a clause in Budapest Airport’s privatization contract that will force the government to pay the operator 1.5 billion euros ($2 billion), with “critical consequences” for the budget, according to a state document published on Dec. 5. The government sold a majority stake in the airport in 2005, and Hochtief has been a shareholder since May 2007.
“There are fiscal risks of course stemming in particular from Malev because it’s a really recent event,” Iryna Ivaschenko, the International Monetary Fund’s representative in Budapest, told investors today. “The situation is really unfolding day by day so we will have to evaluate what kind of implications it will have on headline numbers.”
The government targets a budget shortfall of 576 billion forint this year, equivalent to 2.5 percent of GDP. Yesterday, government commissioner Gyula Budai said Hungary may have to pay as much as 1 trillion forint to the operator of Budapest Airport if Malev is liquidated, MTI news service reported.
Potential budget payments come as Hungary is seeking to revive bailout talks with the IMF and the European Union to quell investor concern about its ability to service the highest debt level among the trading bloc’s eastern members.
Hungary sought aid in November as the forint fell to a record low and the country’s credit grade was cut to junk at Standard & Poor’s, Moody’s Investors Service and Fitch Ratings.
Budapest Airport has recovered more than 60 percent of the point-to-point traffic that Malev provided as existing airlines expanded capacities and new services were announced, the operator said in an e-mail late yesterday.
Deutsche Lufthansa AG, Wizz Air Ltd., Ryanair Holdings Plc, Air Berlin Plc, and Aegean Airlines SA were among the carriers that have announced new routes, the airport said.
Still, Malev’s collapse resulted in the “complete loss” of 1.5 million annual Malev transfer passengers, creating an “extremely difficult financial situation,” the airport said.
“In order to be able to cope with this dramatic situation, Budapest Airport calls on the Ministry of National Development and the relevant authorities to take urgent and coordinated joint steps together with the airport,” the operator said.
--Editors: James M. Gomez, Alan Crosby
To contact the editor responsible for this story: Zoltan Simon at email@example.com
To contact the editors responsible for this story: Balazs Penz at firstname.lastname@example.org