January 30, 2012 / 4:01 PM / 8 years ago

UPDATE 1-Hungary's Malev airline runs out of cash

* Airline says financing unresolved beyond end of January

* Renews plea for govt help, but says aware options limited

* Govt declares airline strategically important

* Move allows govt to protect Malev from bankruptcy process (Releads after Malev statement)

By Gergely Szakacs

BUDAPEST, Jan 30 (Reuters) - Hungarian airline Malev said it doesn’t have the financing to keep going , hours after the government took preparatory steps to restructure the loss-making carrier and protect it from bankruptcy proceedings.

The announcement follows a European Commission ruling early this month that forced the carrier to repay state aid worth hundreds of millions of dollars received from 2007-10, the equivalent of its entire 2010 revenue.

“At today’s board meeting, chief executive Lorant Limburger informed the board that, despite the continuous improvement in commercial results, the financing of operations has become unsustainable as of the end of January, and it is unresolved,” Malev said on Monday.

The airline, which accounts for 40 percent of annual turnover at Budapest’s international airport, said it had managed to agree with U.S. firm ILFC on the continued lease of its fleet, which comprises 22 passenger aircraft.

Malev’s management must draw up a liquidity management plan by the end of this week, the airline said, renewing a plea for government help to resolve the situation.

After failed privatisation attempts, Hungary in 2010 bought back all but a 5 percent stake in the carrier, which employs 2,600 people.

“The board ... asked the owner to do all it can to resolve the situation, while conceding that the (January EU Commission) ruling makes the government’s room for manoeuvre very limited,” Malev said in a statement.

Earlier on Monday a government decree, signed by Prime Minister Viktor Orban, designated Malev as a strategically important company, preventing creditors from launching bankruptcy proceedings.

The decree also allows a government body to run any liquidation procedure started against Malev and handle its assets.

In a Jan. 9 ruling, the EU Commission listed various forms of state financing for Malev between 2007 and 2010, which it said Malev would not have been able to obtain from the market on the terms granted by the Hungarian authorities.

The airline posted a loss of 24.6 billion Hungarian forints ($110 million) in 2010, but early this month forecast a significant improvement in operating results this year on the back of higher revenue and by filling more seats on its planes. ($1 = 224.2766 Hungarian forints) (Reporting by Gergely Szakacs)

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