Government turns down bid for Czech Airlines

The troubled national carrier Czech Airlines will remain in state hands, at least for the time being. After weeks of speculation, the Czech government on Monday refused a sole bid it had received in a tender from the Czech-Icelandic consortium of Unimex and Travel Service. It based its decision on a recommendation by the Finance Minister Eduard Janota, who said the offer was simply too inconvenient.

The Czech government on Monday decided not to sell its majority stake in Czech Airlines and to keep a 92 percent share in the carrier in state hands. The Czech-Icelandic consortium of Unimex and Travel Service was the only remaining bidder in the tender for the sale of Czech Airlines, after Air France-KLM dropped out earlier this year. The consortium had offered one billion crowns for Czech Airlines but it had also laid down a number of unacceptable conditions.

Eduard Janota, photo: CTK

Finance Minister Eduard Janota said at a press conference following Monday’s cabinet meeting that the bidders must have known the government couldn’t accept the offer. One of the consortium’s conditions was paying for the airline in four annual installments until 2013. They also demanded that the owner’s equity be at least at zero at the moment of takeover. At the end of August, however, the Czech Airline’s equity was minus 1.2 billion. The result of the privatisation would therefore be far from advantageous for the state.

Václav Novák, a cost-cutting expert and a former member of Czech Airline’s supervisory board, says the decision was expected:

“A billion crowns is a considerable amount of money. Maybe not enough but it still is a lot of money. But if you look at the conditions of the offer it says: the state as the shareholder would have to increase the equity to zero. By the time of closing of the transaction the equity would be in my view about minus two billion crowns which means the state would have to chip in an extra two billion crowns in order to get one billion back in the next four years. It doesn’t really make much sense. I think it must have been absolutely clear right away.”

The government approved the terms of the sale of the Czech national airline at the beginning of this year, hoping to fetch around 3 to 5 billion crowns. It expected to know the new owner by the end of September. Four bidders originally expressed an interest in buying Czech Airlines: Air France-KLM, Russia’s Aeroflot, the Czech consortium that includes the country’s biggest charter airline Travel Service and a private equity fund Odien. Odien and Russia’s Aeroflot were excluded from the final round in April, while France- KLM pulled out in August, leaving Unimex/Travel Service as the only remaining contender.

Czech Airlines has posted record losses this year, leading to the replacement of the chief executive. The new head, Miroslav Dvořák, has negotiated wage cuts with the unions so far but further cost-cutting measures are expected. The new chief of Czech Airlines is also the head of the state-owned operator of the profitable Prague Airport. While he will hold two posts, the government has ruled out any takeover of the airline by the airport, as well as a merger between the two.