Greece's Aegean Airlines says Olympic buy a necessity

Thu Oct 25, 2012 10:51am EDT

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* Aegean says deal needed to cope with market deterioration

* Expects to post losses in 2012

* Wants regulatory assessment soon as pressures mount

By George Georgiopoulos

ATHENS, Oct 25 (Reuters) - Aegean Airlines' move to cut costs by teaming up with rival Olympic Air is vital for its survival in debt crisis-hit Greece's shrinking air transport market, Aegean's deputy chairman said.

Aegean announced a deal on Monday to buy smaller Olympic Air for 72 million euros from investment group Marfin , less than two years after European regulators blocked their previous attempt to join forces.

"It's a move of necessity so we can have a viable air carrier in Greece," Aegean's deputy chairman Eftyhios Vassilakis told reporters on Thursday at a press conference to explain the rationale of the deal.

"The viability of both airlines is at risk."

Greece's economy is in its fifth year of recession as it drives through austerity measures to deal with a debt crisis that has made it dependent on foreign aid. The country's banks are also consolidating in an effort to cope with the downturn.

The tourism industry accounts for around one in five jobs in the country and is crucial to its economic recovery.

Aegean, with a market value of 118 million euros, expects the deal to generate 30 to 35 million euros in savings over the next 18 months.

"The rationale is to unify administrative and technical divisions, eliminate duplication and achieve lower costs from providers in catering, fuelling as a result of bigger buying power," Vassilakis said.

The European Commission in 2011 blocked an attempt by the two airlines to merge on the grounds the combined company would dominate the domestic air market. However, both firms have since seen their market shares shrink.

Since 2008, passenger traffic in Greece has fallen 30 percent and sales have dropped 45 percent, Aegean said.

The average fare on domestic routes has dropped 25 percent in the last three years, while fuel costs have risen. Aegean, which lost 27.2 million euros last year, expects to end 2012 with a bigger loss. Olympic lost 37.6 million euros in 2011.

Olympic, founded in 1957 by the late shipping magnate Aristotle Onassis and privatised in 2009, will be fully acquired for cash. Aegean will pay in instalments, tapping its reserves.

During their failed merger attempt in 2010-11, Aegean and Olympic offered to cede take-off and landing slots in Greece, but the European Commission ruled it was not enough.

But this time it is a different landscape with new entrants like Cyprus Airways making forays into the domestic Greek market, taking away market share.

"We want the assessment by competition authorities to take place soon. Otherwise, due to the conditions both airlines face, it may be too late," Vassilakis said. (Reporting by George Georgiopoulos; Editing by Helen Massy-Beresford)

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