Spanair ceases operations, cites financial woes

MADRID Mon Jan 30, 2012 5:42am EST

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MADRID (Reuters) - Loss-making Spanish airline Spanair ceased operations on Friday night, grounding all its airplanes after its owner, citing the country's economic crisis, said it would not sink any more money into the company.

Earlier in the day a potential rescue plan for Spanair fell apart when Qatar Airways pulled out of talks to buy a stake in the airline, according to the Catalan regional government.

"It's impossible for the Catalan government to provide new capital, that is what we have communicated to the company," the Catalan government said in a news release, citing the economic downturn that has hit Spain, as well as the failed talks with Qatar Airways.

The Catalan government holds a controlling stake in Spanair along with private investors through the IEASA holding. The airline flies in Spain and elsewhere in Europe.

The Catalan and other regional Spanish governments are under enormous pressure to cut costs to help the central government reach ambitious deficit-cutting targets this year as the euro zone debt crisis looms over the country.

Spanair, Spain's No. 4 airline, has struggled for some years to compete with the rising number of low-cost carriers operating in the country.

"Due to the lack of financial stability in the coming months, the company has opted to cease operating its flights," Spanair said in a statement. Flights were stopped as of Friday night, the company said.

Spanair, also partly owned by Scandinavian airline SAS (SAS.ST), has been looking for a new investor since November and Qatar Airways was reportedly interested.

Qatar Airways declined to comment on Friday.

Gulf carriers, backed by sovereign funds from the oil-producing states, have been eyeing investments in Europe where cash-strapped companies have been looking for external funds.

Qatar Airways bought a 35 percent stake in freight carrier Cargolux Airlines International last year.

Spanair said it was providing a phone number and a website for customers to contact regarding unused tickets.

(Reporting by Robert Hetz; Writing by Elisabeth O'Leary; Editing by Jon Loades-Carter and Steve Orlofsky)

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