When only four bidders entered Czech Airlines (ČSA) privatisation in March, it caused an uproar. People asked why the airline should be sold during a crisis, a time when potential buyers have their own problems and not much money to offer.
Today, a month before the privatisation deadline, a single bidder remains in play — the consortium of Travel Service and Unimex Group. Europe’s number one airline, Air France-KLM, announced Wednesday it would pull out of the tender, while Russia’s Aeroflot and the investment group Odien were eliminated in the first round because they failed to meet conditions.
Threat of huge losses
The situation in Czech Airlines is far from perfect. Passenger numbers dropped by a tenth in the first half of the year, especially in business class, which the company is trying to promote. Moreover, the airline had to cut prices owing to competition. With average seat occupancy at 59.2% in the first half, costs are divided among a small number of passengers.
The company generated CZK 23.2 billion in sales last year. But even with cheaper fuel and other savings, can management achieve its reach its full-year goal of losses between CZK 300 million and 600 million?
“Their losses will be very unpleasant. Maybe CZK 1 billion, or even CZK 2 billion,” Cyrrus analyst Jan Procházka said.
Planned job cuts will not necessarily help, as ČSA pilots have set alarm bells ringing and outrage among employees can thwart the austerity plans easily.
French fading into the distance
The withdrawal of Air France-KLM is political. The company has generated huge losses in recent months (over CZK 20 billion in the first half of the year) and is therefore cutting costs and jobs.
Can any company — much less a French one — tell its employees, “We have to dismiss you, but somewhere in the east we are going to buy a loss-making airline with 4,000 employees for EUR 100 million”? Can they tell investors that, instead of erasing their accumulated losses, they will buy ČSA, which can make money, just not right now?
In a press release, Air France-KLM said it believes ČSA should focus on preparing and implementing an independent rescue plan to revive its business.
In other words: Let them help themselves. But not long ago, the French said that the ČSA network complements perfectly the Air France-KLM network, which would enable them to reinforce their position in central and eastern Europe.
Those are the synergies that ČSA head Radomír Lašák liked to talk about in connection with Air France. The losses and increasing debts at ČSA could pose no problem in privatisation if the buyer itself did not experience difficulties.
What is the minimum price?
The last bidder seems to face no troubles. Air carrier Travel Service is raising both its passenger numbers and profit. Unimex Group does not disclose its results, but its annual reports published in the register of companies show that it is a big and profitable company. Moreover, Travel Service head Roman Vik and Unimex director Jiří Šimáně are experienced businessmen.
What can Travel Service and Unimex Group bring to Czech Airlines? Lašák claims that his company needs no help, but he still perceived both Aeroflot and Air France as saviours. On the other hand, he said he had never expected anything of Travel Service.
“There is definitely no major value added,” said analyst Jan Procházka. Travel Service would bring neither new methods, nor new markets. “ČSA is not so rotten. It would suffice just to open the windows there,” Procházka added.
Czech Airlines will need much more. Air France was the last strategic partner in the tender, and Travel Service can only offer what ČSA can manage on its own. That is, restructuring and downsizing to reflect the current situation on the market.
A sale of assets and a CZK 2.5 billion loan from state-run company Osinek were only temporary solutions. With passenger numbers falling, the airline will have to reduce its capacity correspondingly. Lašák has already started reducing the fleet and wants to slash wages. The company has announced that it might dismiss up to 20% of staff.
However, a dispute broke out between Lašák and pilots, who would like to have their say in privatisation as well as in company management. It involves invectives and threats of lawsuits and strikes. A personal dispute between Lašák and head of the CZALPA pilots association, Filip Gaspar, can jeopardise the airline’s future regardless of who is right.
The company has announced that passenger numbers have returned to last year’s level in recent weeks, but added that prices are much lower and that autumn and winter bookings are not optimistic either. Is ČSA going to deal with it on its own or under a new owner?
Privatisation timeline
5 February 2009, privatisation starts
Purchase price estimates range between CZK 4 billion and CZK 10 billion. Bidders have to guarantee that air transport will remain the main line of business at ČSA and that Prague will remain the airline’s home airport. ČSA has to keep the status of the Czech or European national carrier, which means a majority of the buyer’s capital has to come from the Czech Republic or from the EU.
23 March 2009, bids
Four companies submit bids: Air France-KLM, Darofan (of the Aeroflot group), Odien Group, and the consortium Travel Service/Unimex Group.
20 April 2009, Aeroflot eliminated
The government eliminated investment group Odien and Aeroflot subsidiary Darofan in the first round. The commission said they failed to comply with terms of the tender, but what conditions they did not meet has never been disclosed. According to unconfirmed reports, security risks were involved in the case of Aeroflot.
25 May 2009, ČSA posts losses
Bidders start to make themselves familiar with the present situation in ČSA. At that time, the company announced a first-quarter loss of CZK 1.3 billion and a 12% decline in passenger numbers.
19 August 2009, Air France-KLM pulls out
The hot candidate withdraws, citing unfavourable situation in the air transport business. The consortium Travel Service/Unimex Group is the only bidder in the tender, but the Finance Ministry says it wants to continue with the privatisation.
30 September 2009, deadline for bids
The sole bidder indicates that ČSA is not worth even CZK 3 billion. Finance Minister Eduard Janota plans to advise PM Jan Fischer before the October elections whether to sell ČSA.
