European Goverments bailout National Airlines

Monday 8 July 2013

Since the economic downturn took hold at least 13 European governments have bailed out flag carriers, attempting to rescue the airlines from spiraling debts and teetering on the edge of bankruptcy. The financial support packages have been approved in the face of austerity programs.Mass redundancies and cuts to welfare, health and education have hit the poor the hardest. Moreover, support for airlines brings a disproportionate benefit to wealthier citizens, why fly more. Continued bailouts to airlines exacerbate the financial instability caused by excessive debt.

State aid to Malev, Hungary’s national airline, in the form of state takeover of loans, deferral of tax and social debt, cash facility and stakeholder loans, totalled ‘tens of billions of forint’ between 2007-2010. Then, in 2011, the Hungarian government allocated €277.5 million in budget funds for a capital injection, and borrowed €16.3 million. In January 2012, the European Commission ordered Malev to repay €305 million in illegal state subsidies, and the following month the airline ceased operations with outstanding debts of €206 million.
• Scandinavian airline SAS is half owned by the governments of Norway, Sweden and Denmark. The European Union is questioning whether a €400 million credit facility to rescue the carrier from bankruptcy, half of which was provided by the three governments, breached rules on state aid to airlines.

More examples

• By September 2011, Slovenia’s Adria Airways’ debts reached nearly €70 million. Shareholders approved a debt to equity conversion of €19.7 million and the airline received a €50 million cash injection from the government and the state run PDP Corp.

• The Latvian government stepped in to prop up the national airline, air Baltic, in 2009, with a share capital injection of €22.7 million. But the airline continued to make losses, of €135.6 million between January 2008 and June 2011. The government stepped in again to increase support for the carrier. In September 2011. A closed cabinet meeting agreed to allocate €81.2 million to increase share capital.

• The European Commission approved €130 million in state aid to Air Malta in June 2012. Previous government support for the airline included a state loan of €52 million in 2010.

• The Cyprus government increased beleaguered Cyprus Airways’ share capital by an additional €31 million in July 2012. This sum topped up €23.9 million of government support in 2011 and €15 million in the first half of 2012. Air France-KLM, appointed as consultants to review the business, concluded that the airline would require a further €73 million to continue operations into 2013.

• In September 2012 the European Commission approved €100 million in state aid, a debt to equity swap, to government owned Czech Airlines.

State aid to Estonian Air between 2009 and May 2013 included three capital injections to the value of €57 million. In May 2013 the Estonian government announced a plan for a new bailout of €40 million. The European Commission asked the government to freeze bailout payments pending a final decision on the legality of the payments under EU competition rules, but €16.6 million had already been granted to Estonian Air.

• A €100 million state bailout package to LOT Polish Airlines, agreed by the government last December, was approved by the European Commission in May 2013. LOT has been posting a loss for five years.


Losses of 38 million in 2012 were the highest since 2008. But the bailout is proving insufficient to keep LOT afloat (the usual description for propping up a firm with financial support, the word ‘aloft’ would be more appropriate). On 20th June 2013, Business News Europe reported that LOT had applied for a second bailout, a loan of €88 million.

These counties’ flag carriers, supposed national assets, are national liabilities. It is interesting that a considerable amount of the financial support has been approved by the EU Competition Commission. This maintains that, while financial support to established airlines breaches EU competition laws, emergency support for rescuing and restructuring firms is permitted. The definition of ‘emergency support’ has been interpreted generously as many of the airlines have received financial support repeatedly over long periods.

Croatia joined the European Union on 1st July 2013. This is likely to facilitate the accession of neighboring Serbia, Bosnia-Herzegovina and Montenegro. All four countries have also provided financial support to their flag carriers in recent years.

• Croatia Airlines was handed a €106 million government cash injection in November 2012. But by April 2013 debts stood at €131.4 million. The airline has been reliant on government subsidies since 1991.

• Bosnia-Herzegovina’s BH Airlines is subsidized by the Bosnia-Croat Federation, to the tune of nearly €3.6 million per year. This proved insufficient for BH, which was grounded in March 2013, its accounts frozen because of outstanding debts. But BH was soon back in the air because of a government deal to partially repay debts with the sale of two of the carrier’s aircraft.

• Serbia’s JAT Airways is attempting to form a partnership with UAE’s Etihad Airways. A deal is unlikely without support from the Serbian government, which in March 2013, stated that it was prepared to take on €170 million of debts. And pay leases for six aircraft and secure redundant workers’ severance payments.

• Montenegro Airlines, heavily in debt and short of cash, was granted €9.6 million in government loans in April 2011. With that amount they could buy new aircraft, maintain its fleet and start new routes.