Poland lends flag carrier LOT $130 m to keep flying

Monday, 7 January 2013 00:00 - - {{hitsCtrl.values.hits}}

Reuters: Poland has agreed to give its ailing flag carrier LOT a 400 million zlotys ($130 million) loan to prevent the airline from succumbing to its continuing losses and mounting debts.

LOT, one of the world’s oldest airlines, warned last month it needed the state aid and would likely seek more after warning its workers it would again be deep in the red this year.

The Treasury Ministry, which oversees state assets, said on Thursday the loan was transferred on Dec. 20. The ministry had previously said it looked favourably at the request, but had not discussed whether it would provide the funds.

LOT, which lost a total of 1.1 billion zlotys between 2008 and 2011, is expected to seek further loans to fund its business. However, the European Commission has to approve the aid and could ultimately force LOT to pay back the loan if it finds it illegal.

The EU executive body’s competition authority was not immediate available for comment.

Some experts fear LOT may share the fate of its defunct Hungarian rival Malev, which stopped flying a year ago after the European Union’s executive arm forced the carrier to repay aid worth hundreds of millions of euros.

The Polish airline has been hurt by cut-throat competition from no-frills competitors such as Ryanair and easyJet , along with high fuel prices and depressed demand due to Europe’s economic troubles.

LOT’s ex-Chief Executive Marcin Pirog, who had indicated improved results for last year as recently as September, said after his dismissal the company’s 2012 net loss would likely reach 220 million zlotys.

A LOT spokesman said the group would use the state aid to pay its most outstanding bills and help keep it steady through the winter season before traffic picks up in the second quarter.

He added that LOT, in which the state holds 93 percent, would present details of a rescue plan before the end of March.

Union representatives said Pirog had told them LOT planned to dismiss some 600 employees, or about a third of its workforce, and reduce its network of flights by about third.

LOT took delivery of a Boeing Dreamliner 787 in November, hoping the status of being the first European carrier to add the long-delayed jet to its fleet could help boost its flagging fortunes.