* All Malev flights grounded as of 0500 GMT on Friday
* Comes after EU ruling in January to repay state aid
* Malev accounted for 40 pct of Budapest Airport revenue
* Ryanair, Wizz Air, other low-cost carriers launch flights
By Marton Dunai and Gergely Szakacs
BUDAPEST, Feb 3 Hungarian flag-carrier
Malev ceased operating early on Friday after its
planes were held overseas for unpaid debts, leaving a gap in the
market that low-cost competitors were quick to exploit.
Several budget carriers, including Ireland's Ryanair
and Air Berlin, announced an immediate increase in their flights
from Budapest airport, where state-controlled Malev was a major
airline providing 40 percent of revenue.
Prime Minister Viktor Orban told Kossuth radio on Friday
that the decision to ground Malev, which ends 66 years of almost
continuous service, was made after two aircraft were not allowed
to take off from Tel Aviv and Ireland.
Malev said its suppliers had lost confidence and started to
demand advance payment for their services, while the government
could no longer inject cash following a European Union ruling to
claw back millions of dollars of state aid last month.
The airline, which is 95-percent owned by the state after
failed privatisation attempts, has a leased fleet of 22
passenger aircraft and employs around 2,600 people. It was
placed under creditor protection earlier in the week.
All flights were grounded from 0500 GMT on Friday. A Reuters
correspondent at the airport estimated there were about 100
people stranded at terminal 2. Malev's early morning
announcement was greeted with scornful cheers and applause by
"They gave us a bottle of water, and they think this will
compensate us for the whole ticket?" said 30-year-old Melinda
Kis, who was en route to Copenhagen with her husband and four
In December, the government warned the potential loss of the
airline, which spent about 50 million euros a year on air
service charges and real estate fees, could jeopardise the
operation of Budapest airport, owned by Germany's Hochtief
and four financial partners.
Airport spokesman Mihaly Hardy told Reuters: "There are some
estimates that over 20 or 23 routes of Malev will never be
served by other airlines."
Pal Volner, state secretary of the Development Ministry said
an increase in low-cost airline traffic may help offset the loss
of volume due to Malev's failure.
"Should the airport nevertheless face a problem, that will
have to be settled in separate negotiations," Volner said.
LOW COST AIRLINES JUMP IN
Irish low-cost airline Ryanair announced 26 new routes from
Budapest on Friday in a move to capitalise on the grounding of
Ryanair, which in January announced plans to fly five routes
from Budapest, has increased that to 31, most of which will be
operating by April. It said it will base four aircraft in
Budapest and carry up to 2 million passengers per year.
Budapest-based low-cost airline Wizz Air offered to sell
50,000 tickets for 9,900 forints ($45) to holders of Malev
tickets for flights in the winter season, which will end on
March 24, Wizz Air CEO Jozsef Varadi told a news conference.
Wizz Air, Central Europe's biggest air carrier will raise
its Budapest-based fleet to five planes from three.
German flagship carrier Lufthansa < LHAG.DE > said
it would add one daily flight from Hamburg and Berlin each to
Budapest from Monday. Air Berlin < AB1.DE >, Germany's
second-biggest airline, is also adding a flight from Berlin to
Czech Travel Service's low-cost airline SmartWings will
start flights this month from Budapest to Tel Aviv, followed by
Paris in April and several other European destinations in May.
It was not immediately clear whether Malev's halt would
automatically trigger a compensation clause in the privatisation
agreement the airport signed in 2005 with BAA, which sold it two
years later to its current owners.
The Development Ministry said in December the state could be
required to pay about 1.5 billion euros ($2 billion) if the
airline ceased flying, with "grave consequences for the
maintenance of the budget deficit target".
Sources familiar with the situation told Reuters however the
amount could be far lower. Hochtief declined to comment.
Prime Minister Orban tried to soften the blow.
"(But) I think restarting is not impossible, and if we can
get rid of the burdens inherited from the past, there could
still be a Hungarian national airline," he said.
The airline posted a loss of 24.6 billion forints ($110
million) in 2010, but early this month forecast a significant
improvement in operating results this year.