Bloomberg News

LOT Polish Airline Faces ‘Painful’ Cost Cuts to Survive

March 22, 2013

LOT Polish Airlines SA, central Europe’s biggest state-owned carrier, needs to implement a “painful” cost-cutting program this year to avoid bankruptcy, Treasury Minister Mikolaj Budzanowski told lawmakers today.

LOT’s new management this week filed its proposals with the government, seeking to generate more than 150 million zloty ($46.3 million) of savings this year and return to profits in 2014, Budzanowski said during a parliamentary debate over LOT. The carrier, unprofitable since 2007, sold assets last year and received a 400 million-zloty emergency loan from the government in December to continue operations.

“We won’t inject more cash into the company if there’s no chance for LOT to regain sustainable profits,” Budzanowski said, adding the company’s proposals include 131 initiatives that should be implemented this year. “The restructuring will be painful but without it the company will cease to exist.”

Government-owned carriers in post-communist Europe are struggling to survive as the global debt crisis coincides with high fuel prices and a European Union clampdown on state aid. Hungary’s Malev Zrt. collapsed in 2012 while AS Estonian Air, Latvia’s AirBaltic AS and Slovenia’s Adria Airways d.d. asked for state support in past years after their losses mounted.

Job Cuts

LOT, which has already begun dismissal of 360 employees, plans another 320 job cuts, Dziennik Gazeta Prawna reported yesterday, citing the plan. Last month the company said it will eliminate unprofitable routes and focus on trans-Atlantic, long- haul flights and European destinations that attract business passengers.

The airline, the first European carrier to receive 787 Dreamliners, incurred additional losses this year after Boeing Co. (BA:US)’s model was grounded globally on Jan. 15 by the decision of the U.S. Federal Aviation Administration on battery faults. The Treasury Ministry said in February that LOT, which earlier bet on 787s to cut its fuel costs, is losing $50,000 for every day its two new planes aren’t flying.

Poland, which holds a 93 percent stake in the company, keeps plan to sell the airline to industry and financial investors after it becomes profitable, Budzanowski said today.

LOT lost a potential buyer in June when Turk Hava Yollari AO (THYAO), or Turkish Airlines, ended talks because of EU rules capping outside ownership. To help draw interest from bidders, the government is considering changes in foreign ownership rules to allow a buyer to gain a controlling stake.

To contact the reporter on this story: Maciej Martewicz in Warsaw at mmartewicz@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net


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