Government clears restructuring route for struggling Czech Airlines

The Czech government has cleared far reaching plans for Czech Airlines to face the future. The state-owned carrier will be relieved of its debt burden but at the price of a significant cut in its size and ambitions. We look at plans for the struggling airline.

Czech Airlines’ restructuring plans were cleared by the government on Monday on the back of news that the 95 percent state-owned airline racked up losses last year of 3.7 billion crowns, around 190 million US dollars.

Photo: www.csa.cz

The restructuring follows the stick and carrot format. The carrot is the translation of 2.5 billion crowns of existing debt into more shares owned by the state which virtually wipes out the airline’s debt burden.

That will be regarded by rivals and competition watchdogs in Brussels as state support and the accompanying measures amount to a severe slimming down of Central Europe’s biggest airline.

Over the next three years, Czech Airlines will cut the number of seats offered to passengers by 30 percent. As part of that reduction it will progressively offload the 18 Boeing aircraft it currently owns or leases and turn its fleet into a predominantly Airbus one.

The total fleet size will only come down from the current 49 to 39 because another eight Airbus aircraft are still on the way.

Photo: Archives de Radio Prague

In addition, loss making and poorly performing routes will be slashed. Overall, bosses say destinations to the former Soviet Union and Central Asia still look more promising than many of those to West Europe where there is fierce competition from other carriers.

The current workforce of just over 4,000 could be cut by 10 percent according to Minister of Finance Eduard Janota. At the same time, non-core activities and non-essential assets will be spun off or sold.

The plans say the gain from this pain is that the airline should break even on its operations in 2011 and turn a profit in 2012. That would put it in the frame again for privatisation.

Former Czech Airlines boss and crisis manager Václav Novák says the restructuring plans are heading in the right direction. But he warns that time is running out to set established, or legacy carriers, such as Czech Airlines on the right path.

Václav Novák

“I think there is a future for them as long as they change and change quickly enough. If you look at some of the new airlines that have come into being in the last 15 years – in Europe, Air Berlin is one example and they do not have to be low cost carriers in the sense of Ryanair – they have adapted themselves to the environment they grew up in. And this is exactly what big carriers or legacy carriers have to do. So if they can come up with the money and finance to change and can do it quickly they have a chance to survive.”

Mr. Novák says big airlines have two years to change their ways, smaller ones only around 12 months.

In the meantime, Brussels still has to clear Czech Airline’s proposed flight plan into profit.