Rough ride for eastern European carriers

Captain Tadeusz Wrona became a Polish national hero in November after a successful emergency landing of his Lot Polish Airlines Boeing 767 without wheels at Warsaw airport after a landing equipment failure. Now his chief executive, Marcin Pirog, is trying to achieve a less dramatic — but also difficult — rescue of the entire loss-making airline. "We have a difficult task, and we aren't being helped by external conditions," said Pirog, who took over at the state-owned carrier in 2010. Lot and neighbouring national airlines — CSA Czech Airlines and Malev Hungarian Airlines — are in a double bind. First, their networks are too small to compete for long-distance traffic against big carriers such as Lufthansa, which draws large numbers of passengers from the region to its hubs in Frankfurt and Munich. Second, they face fierce short-haul competition from low-cost carriers such as Ryanair and Hungary's Wizz Air. Article continues below The region's airlines are saddled with debts and most are in the red, a consequence of high fuel prices and falling passenger numbers. Many are selling off subsidiaries, such as catering services, to have enough cash to continue operating. In 2010, Lot carried about five million passengers and posted a 52 million zlotys (Dh56.2 million) net loss. Last year appears to have been little better, since predictions for a 50 million zlotys loss looked optimistic. Malev generated an operating profit in October for the first time in years, having in 2010 posted a 24 billion forint (Dh374.6 million) loss on revenues of 90.8 billion forints. CSA lost $33 million in 2010, but this was only a third of the loss it ran up in 2009. Remaining on state life support indefinitely is not an option. The European Commission is investigating Malev and CSA for allegedly benefiting from improper government aid, and the Hungarian carrier faces the possibility of repaying €332 million (Dh1.5 billion). Lot has been helped by selling its catering and airport service subsidiaries, which were bought by the state for 230 million zlotys. Privatisation difficult But privatisation looks almost impossible amid the growing economic gloom. There is little interest from the big three of Europe ­— International Airlines Group (formed by the merger of British Airways and Iberia), Lufthansa and Air France-KLM — in buying any of the government stakes. Lot is 94 per cent owned by the state; Malev was renationalised by the government in 2010 after a short period as a private company; and an effort in 2009 to sell CSA failed, spurring the Czech government to embark on a deep restructuring of the airline. All three need to slim down and cut costs. The airlines are all moving to reduce the variety of aircraft they use in order to cut maintenance costs: Lot and Malev are opting for Boeing while CSA is shifting to Airbus. They are dropping less profitable destinations.