Korean Air finalises investment in loss-making Czech Airlines

PRAGUE, April 10 Wed Apr 10, 2013 11:35am EDT

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PRAGUE, April 10 (Reuters) - Korean Air has taken a 44 percent stake in Czech Airlines, providing a lifeline for the loss-making state-owned carrier and giving the Korean group a bigger presence in Europe.

The Czech state had wanted an outside investor to help its loss-making airline restructure and cope with difficult conditions in Europe as a result of the economic crisis, high fuel costs and competition from low-cost airlines such as Ryanair.

Smaller airlines in central Europe have had a tough time in Europe's economic downturn, with Austrian Airlines taken over by Lufthansa, Hungary's Malev gone bankrupt and Poland's LOT struggling with mounting debts.

"We only had two options: either find a strategic partner or consider liquidation of CSA (Czech Airlines)," Czech Finance Minister Miroslav Kalousek told reporters.

The sale, announced last month and finalised on Wednesday, was for a nominal price of 2.64 million euros, derived from an independent audit.

Korean Air, already Czech Airlines' partner in the Sky Team global alliance, was the only bidder for the minority stake.

The Korean carrier already operates direct flights to the Czech capital but will now make Prague one of its transfer points in Europe, bringing new business to Vaclav Havel Airport.

Czech Airlines is one of Europe's oldest carriers but has had to sell a substantial part of its assets, including cargo, servicing and handling operations, under a restructuring programme over the past few years.

James Halstead, a senior associate at Aviation Economics, said Korean Air's investment alone would not solve Czech Airlines' problems.

"It doesn't solve the fundamental problem of a small ... state-owned flag carrier competing with major network carriers and low-cost carriers in Europe," he told Reuters at an aviation conference in Barcelona.

Korean Air said it was confident in the Czech airline and did not plan to take part in managing the firm. "Our company is not interested in participating in the management of CSA," Korean Air President and Chief Operating Officer Chang Hoon Chi said at a signing ceremony with Czech Prime Minister Petr Necas.

Czech Airlines carried 4.25 million passengers in 2011 and lost 241 million crowns that year, the most recent period for which results are available. It has cut its fleet to 26 planes.

An attempt to privatise the airline in 2009 collapsed after the bidder, Czech charter airline Travel Service, refused to proceed without securing a capital injection from the government. (Reporting by Jason Hovet; Additional reporting by Tim Hepher in Barcelona. Editing by Jane Merriman)

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