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Malev Shuts as Euro Crisis Claims Second Airline

Malev Zrt. (MALEV), the state-owned Hungarian airline founded in 1946, ceased flying after the government withdrew financing, becoming the second victim of European austerity measures in a week after the collapse of Spanair SA. Malev, which has debts of 60 billion forint ($270 million), halted flights at 6 a.m. local time, with police guarding its ticket booth at Budapest’s main Liszt Ferenc airport as hundreds of passengers milled around seeking to rebook or get a refund.

03.02.2012 10:42

Malev Zrt. (MALEV), the state-owned Hungarian airline founded in 1946, ceased flying after the government withdrew financing, becoming the second victim of European austerity measures in a week after the collapse of Spanair SA.
Malev, which has debts of 60 billion forint ($270 million), halted flights at 6 a.m. local time, with police guarding its ticket booth at Budapest’s main Liszt Ferenc airport as hundreds of passengers milled around seeking to rebook or get a refund.

“What we fretted about the most and what we’ve done the most to avert has come to pass,” Chief Executive Officer Lorant Limburger said in a statement, adding that Malev’s cash-flow became “untenable” after service providers “lost faith” and a European Commission ruling hindered further state support.
Governments are becoming reluctant to prop up airlines as Europe’s debt crisis forces the region’s deepest cost cuts in a generation. Barcelona-based Spanair ceased flying Jan. 27 after failed bid talks prompted Catalonia to halt funding, and Sweden, Ireland, Portugal, Poland and the Czech Republic are also seeking to reduce state support for carriers.

“Grounding Malev is painful,” Hungarian Prime Minister Viktor Orban said today after the airline’s board ordered it to fold. “We’ve tried to push it along and keep it flying as long as we could, but this is the end. We can’t keep this going on without the risk of losing the aircraft that are abroad.”

‘Catastrophe’

While a profitable flag carrier should be part of Hungary’s “national economy,” a replacement will be set up only with the backing of private money, Orban said on MR1 radio, and given the economic crisis, “investors aren’t bustling on the market.”
Chris Tarry, an independent analyst in London, said Hungary needs to decide whether it can count on carriers such as Ryanair Holdings Plc to provide transport links vital to the economy.

“There’s a lot of competition in Budapest, but if you rely on a non-local carrier they can always take their aircraft away,” said Tarry, who has covered airlines for almost 30 years.

Passengers and staff at Liszt Ferenc airport, which changed its name from Ferihegy last year to honor composer Franz Liszt, said the collapse of Malev would damage Hungary’s reputation and might affect people’s willingness to visit or do business there.

“This is a catastrophe,” said Hajnalka Gundert, a 37-year- old nurse with a ticket to London, where she plans to move for a better-paid job in a nursing home. Malev’s demise is “one more sign that we need to leave to have a better future,” she said.

Spanair Failure

Spanair became the first scheduled European airline to collapse since the last recession after Qatar Airways Ltd., the second-biggest Middle Eastern carrier, halted bid talks and the Catalonia government indicated it would no longer supply funds.
The airline, founded in 1986, was Spain’s fourth-biggest by passenger numbers, carrying almost 13 million in 2011.
Budapest-based Malev, a member of the Oneworld airline alliance that includes British Airways, reported a loss of 24.6 billion forint in 2010, the latest year for which results are available, little changed from its deficit in 2009.

The company’s plight worsened on Jan. 9 when the European Commission ruled that it should return the equivalent of $390 million in “unlawful aid” paid by the government from 2007 to 2010, saying it would have struggled to raise cash from a private investor. Malev borrowed 5 billion forint in December and received 8.5 billion forint in budget funds in August.

IMF Talks

The collapse comes as Hungary seeks to revive bailout talks with the International Monetary Fund and European Union to quell investor concern about its ability to service the highest debt level among the trading bloc’s eastern members. Orban 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.

Malev was already effectively operating in bankruptcy protection, having been declared a “strategically important company” on Jan. 30, shielding it from creditors.
Low-cost rivals including Budapest-based Wizz Air Ltd. have been squeezing Malev’s earnings, and competition was set to increase this spring, with Ryanair Holdings Plc, Europe’s top discount operator, resuming flights after an 18-month gap.

Wizz Air is offering stranded Malev passengers one-way flights of “special, discounted” tickets for 9,900 forint, or $45, the company said in an e-mail today.

The grounding ends a two-decade search for a viable partner since Malev was transformed into a joint stock company in 1992 following the collapse of communism.

The last recession led to the failure of a takeover by Russian entrepreneur Boris Abramovich, and Hungary was compelled to renationalize Malev, taking a 95 percent stake in 2010. As recently as this week, Chairman Janos Berenyi said it was “not impossible” that talks with Hainan Airlines Co. parent HNA Group could be revived. The Chinese company said yesterday it was “willing to restart negotiations on a possible bid.”

Source: Bloomberg




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