Czech Smartwings Eyes Aid Without Giving Government A Stake

Smartwings, the Czech low-cost airline, and owner of flag carrier Czech Airlines, announced this week that it does…

Czech Smartwings Eyes Aid Without Giving Government A Stake

Smartwings, the Czech low-cost airline, and owner of flag carrier Czech Airlines, announced this week that it does not want to be taken over by the Czech Republic as a way of being supported through the COVID-19 crisis. Instead, Smartwings wants state-backed guarantees to help cover its losses resulting from a full fleet grounding that lasted a month and a half.

Smartwings is not accepting government support in the form of total or partial nationalization. Photo: Getty Images

What does the Czech Republic want?

Reuters reports this week that Smartwings is seeking state support following a severe financial hit to the airline resulting from a coronavirus-related shutdown of operations. Smartwings also owns one of the oldest airlines in the world and the Czech Republic’s flag carrier, Czech Airlines. As such, it is requesting government support from a very strong negotiating position.

Last week, the Czech Republic’s Industry Minister Karel Havlicek suggested that one way in which the country could help the airline is by entering its ownership structure “up to 100%”. Finance Minister Alena Schillerova then backed this proposal. Smartwings and Czech Airlines employ 2,500 people in the Czech Republic and have been deemed an organization of strategic importance by their country’s government.

Air Algerie, Boeing 737, Engine Shutdown
Smartwings would prefer state loans or state guarantees. Photo: Laurent Errera via Wikimedia

What does Smartwings want?

However, Smartwings has now rejected the government’s proposal unequivocally, suggesting that it is asking the state “mainly about a loan or loan guarantee.” The airline has said it has “no interest” in the government acquiring a stake of any kind in Smartwings.

It would appear that the airline would accept loans and non-grant funding of any kind, so long as its ownership structure is not compromised. This is the same scenario as we saw last month with Lufthansa and Germany. Lufthansa Group was reported to be examining bankruptcy proceedings as a way to pressure the German government to provide it with support on favorable terms.

At the moment, the airline is owned by Czech businessman Jiri Simane and partners, who own 50.1% of the group. The remaining 49.9% is owned by CITIC Group Corporation, a state-owned investment vehicle for China. This ownership structure looks set to stay. It is a familiar model in aviation: Etihad owns 49% of Air Serbia, and Qatar Airways owned 49% of Air Italy.

Lufthansa, Airbus A320, Grounded
Lufthansa was in a similar position to Smartwings – when the German government offered it financial support at unfavorable terms, it refused. Photo: Getty Images

So what is likely to happen?

The Czech government has already come under fire in the country from the opposition parties, which said they do not want the airline to receive government support that is proportionally greater than that which is available to other companies. Industry Minister Karel Havlicek promised a decision would be made until June. This is, as expected, a fairly tight timeline. It is looking increasingly likely that the Czech government will indeed provide support for Smartwings without acquiring a stake in it.

Do you think the Czech Republic is likely to insist on entering the ownership structure of Smartwings? 

Source : Simple Flying More   

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South African Airways Given 25 Days To Plan Turnaround

The future of South African Airways got a bit of a shakeup on 15th May, when the government…

South African Airways Given 25 Days To Plan Turnaround

The future of South African Airways got a bit of a shakeup on 15th May, when the government requested a business plan for the airline within 25 days. Plans to rescue the airline have been ongoing since late 2019, and even allowing for the current pandemic, the government is not satisfied with the progress.

There should be a business plan for restructuring South African Airways by early June. Photo: Getty Images

Demands from a parliamentary standing committee

As reported by FlightGlobal on 18th May 2020, the standing committee on public accounts has asked for a full business plan for South African Airways from its rescue practitioners and advisors. It wants this delivered within 25 days, along with a full schedule of fees.

The committee is frustrated at delays in the rescue plan, rising costs, and a lack of interaction with rescue practitioners. Committee chairman Mkhuleko Hlengwa explained this in a meeting on 15th May (as reported by FlightGlobal). He said:

“The more they provide answers, the more questions arise. It is a case of classical musical chairs. It’s what has characterized the operation over the past five months. It’s what has landed us with a Rand 10 billion bill.”

Public enterprises Minister Pravin Gordhan also told the committee that according to legislation, a business rescue plan should have been produced within 25 days, and no-one expected it to take so long. He has been at odds with the rescuers for some time, as he believes in finding an investor and rescuing the airline, as Simple Flying discussed recently.

South African Airways
Pravin Gordhan, South African Minister of public enterprise, is opposed to liquidation of South African Airways. Photo: Getty Images

The committee will also put together a list of questions for the practitioners. The deadline for responses to this is set for 26th May.

Ongoing for five months

Work to rescue South African Airways began in late 2019, and there have been repeated delays since them. Some of this was explained in the meeting. With a lack of experience in airlines, the practitioners first brought in specialist firm Alvarez & Marsal in December 2019.

This led to an option to restructure the airline through a new holding company. The airline entered business rescue in January 2020 and, after obtaining a loan from the Development Bank of South Africa, the practitioners were given until mid-March to produce a draft rescue plan.

The coronavirus pandemic delayed this further. The airline announced it would lay off all staff by the end of April, as the rescue practitioners continued to develop a plan.

All told, by the end of April, the rescue plan had cost almost 10 billion Rand ($556 million). This includes salaries, fuel, aircraft leases, and technical services and services from regional carrier Airlink.

South African Airways SAA A340
South African Airways is currently flying only a few repatriation services. Photo: Getty Images

Future of the airline

As Simple Flying reported recently, the relationship between Pravin Gordhan and the rescue practitioners has been tense for some time. He is determined to avoid liquidation and secure an investor. As we quoted from Fin24, Mr. Gordhan explained his view, saying:

“Winding down is not an option. The purpose of providing R5.5 billion post business rescue commencement funding was to complete the business rescue process, which must end with a cost-effective and streamlined airline.”

Demanding a rescue plan to be delivered within 25 days may not make the future of the airline clearer yet, but it will at least help to speed up decisions. Perhaps there will be a plan in June that Mr. Gordhan will lend support to.

What do you think of the situation with South African Airways? Will it find an investor, or could it face liquidation? Let us know your thoughts in the comments. 

Source : Simple Flying More   

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