For years, LOT Polish Airlines has been facing financial problems and the economic crisis significantly aggravated the situation. Today, the flag Polish carrier is facing collapse and its prospects of success are narrowing.
Due to extensive losses, the company sold its assets in a desperate attempt to cover its liabilities. Currently, the main shareholders of LOT are the State Treasury (67.97%) and TFS Silesia (25.1%) and the rest of the shares is held by the employees. With the loss of 50 million dollars at the end of 2012, the company was granted 125 million dollars by the Ministry of State Treasury for the payment of the company's debts and operational losses.
That was the first tranche of the public loan granted to LOT and its total amount will be 0.3 billion dollars. The first quarter of 2013 brought better results compared to those predicted in the restructuring plan and analysts estimated that the cash flow had improved by 10 million dollars. Nevertheless, the company's results are still negative and, after the dismissal of 360 employees in March this year, the carrier has two options: it may undergo bankruptcy like the Hungarian Malev or find an external investor, as was the case with Czech Airlines that avoided collapse thanks to Korean Air.
'LOT must join somebody who, by definition, has a different strategy. For financial and mental reasons, the easiest way is to tie our strategy to one of the European carriers. Of course, an investor from outside of Europe is also being considered. Every solution that brings an investor from the industry is desirable,' said Sebastian Mikosz, CEO of LOT Polish Airlines.
One of the options is Eithad Airlines based in the United Arab Emirates. At the General Meeting of the International Air Transportation Association (IATA), Eithad expressed its intention to invest in LOT and buy 49% of its shares. The company specializes in purchasing A minority interest of companies in different regions of the world and it has already invested in some European carriers like Air Berlin and Air Serbia. However, Eithad clearly stated that it was not going to rescue a sinking ship and there must be a concrete prospect of restructuring that will consequently bring profit. Compared with European investors - a more favorable option for LOT's management board - Eithad would improve only the intercontinental offer to such destinations as the USA and Canada. Although the choice of Eithad seems hazardous, the public budget does not have sufficient funds to rescue LOT on its own account and there is no feasible solution for restructuring. No official statements on that matter have been announced and both parties remain silent about the results of the negotiations. Also the case of OLT Express offers a mixed outlook for the future. The low-cost carrier was established in 2011 and comprised OLT Express Poland and OLT Express Regional. It declared bankruptcy in 2012; however, some experts claim that the airlines were a positive phenomenon, proving that Poles want to use domestic flights. OLT paved the way for new, regional approach to flights that may be an alternative to car and railway transport.
Despite the financial difficulties of the flag carrier, flights are becoming increasingly popular in Poland. Thanks to the organization of the EURO 2012 and the necessity to provide high-standard infrastructure, not only did the airports in the main Polish cities undergo extensive modernization, but also new ones were built in smaller cities like Lublin. The administrative authorities of the airports have further plans for improvements, which may seem like a risky strategy in the face of the crisis. Some claim that those actions are a waste of money and there is no point in building costly 'palaces' for air flights while the economic situation is still unstable. The authorities and some economic experts calm those pessimistic reactions, referring to forecasts that the market will keep developing with respect to the number of passengers and airport operations. The President of 'Polish Airports' State Enterprise (a shareholder of the main airports in Poland) supported the investment claiming that they were financed from EU funds, shareholder funds and its implementation was based entirely on commercial principles.
Recently, one of the biggest investments in the Polish aviation infrastructure was the airport in Modlin (40km from Warsaw) intended for low-costs carriers. The airport was opened in 2012 and its main task was to lighten the load of Chopin Airport within the administrative borders of the city. However, at the end of the year, an inspection conducted by the Inspectorate of Construction Supervision found serious defects in the runway. As a result, the most common passenger planes like the Airbus A320 and Boeing 737 could not land there and the airport was eventually closed. After a six-month-long break in functioning, the first plane, owned by Ryanair, landed there on July 20, 2013. It is estimated that during that time, the airport lost 50 thousand dollars daily and it is still not fully operational. In July, Ryanair announced that it would direct all of its flights to Modlin until the beginning of September; however, the carrier eventually prolonged that period until the end of October. Another low-cost carrier Wizzair declared that it would keep operating its flights at Chopin Airport in Warsaw without any intentions to move to Modlin. The company justified its decision by the fact that the airport in Modlin does not fulfill sufficient technical requirements for planes to land in fog or blowing snow. Also, a survey conducted among its customers showed that they would prefer to use the Chopin Airport that is situated much closer to the center of the capital of Poland. In order to maximize the efficiency of Modlin Airport, some experts claim that the authorities should apply the DUOPORT model that would employ one administrator to provide services for both airports. In 2011, 'Polish Airports' State Enterprise proposed that Modlin Airport function as a complementary airport for the main one in Warsaw; however, the solution was rejected. Currently, it is only a far-fetched vision and there are no concrete plans to implement the model. In response to the recent events, the authorities of Chopin Airport admitted that they would prefer that low-cost airlines use another airport; however, as a public entity, it cannot ban any carrier from using its facilities.
Paradoxically, the difficulties related to the airports and carriers in Poland are not reflected in the aviation industry. On the contrary, the results achieved on the Polish, as well as international markets show a significant increase in that sector. In 2012, the global rise in the manufacturing industry reached the level of 6% and amounted to 692 billion dollars. Between 2013 and 2018, the Polish National Center for Research and Development is going to devote 157 million dollars to scientific research, which will significantly increase the market share of Polish manufacturers of airplane parts on the global market. The manufacturing potential of Poland has already been recognized by such major global players as Pratt & Whitney, Sikorsky, Agusta, SAFRAN and Goodrich Aerospace. The privatization of PZL Mielec became the model of foreign investments in Poland.
'With a combined nearly 8,000 employees, United Technologies Corporation, Pratt & Whitney, and Sikorsky Aircraft are Poland's largest aviation industry employers. These combined strategic investments of money, know-how and state-of-the-art technologies will significantly add to Poland's proud aviation tradition among European and global companies,' - said Jeffrey Pino, the former President of Sikorsky Aircraft Corporation.
The most notable result of those strategies is the Aviation Valley, the initiative that has already been called the 'pride' of Polish aviation. The investment is based Rzeszow, the capital city of the Subcarpathian region in southeastern Poland. The Association of Entrepreneurs of Aviation Industry Group 'Aviation Valley' undertaken in 2003 initiated it. The success of the venture was made possible due to complex planning and consistent cooperation between numerous Polish companies and investors focused on aviation development and production. An unprecedented solution in Poland, the Valley comprises research centers, manufacturers and academic institutions. Currently, it is part of the global group of World Class Clusters - a term that defines complex and consolidated centers for aviation development worldwide.
'The Polish aviation industry has become part of the global delivery chains to the biggest aviation companies worldwide. At the same time, it is also one of the most innovative industries. (…) The whole economy has the opportunity to become more competitive. Aviation is the sector in which the application of research in practice is at a very high level and the development of new technologies translates into other economic sectors. More importantly, it seems that the industry demand will keep growing,' explains Michal Turczyk, Senior Manager - R&D and Government Incentives at Deloitte.
The dissonance between various aspects of aviation in Poland can be perfectly illustrated by Sebastian Kawa, multiple champion in gliding. For the past ten years, he has been the undefeated leader and won all possible titles in that sport discipline. Despite his merits, he has to pay 5000 PLN on every championship, as the state does not provide sufficient funds for that purpose. In Poland, he is virtually unknown and there is more information about him in the Czech, New Zealand and French media. Sebastian Kawa will certainly keep improving his performance in gliding; however, the Polish government should not forget about the importance of airlines and carriers, as they may not succeed on their own.
Author: Grzegorz Zawora / pr-controlled.com ©
Photos: PLL LOT, Sikorsky Aircraft