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Deals - Asia

Poland in talks with Chinese buyers over LOT airline stake

WARSAW (Reuters) - Poland is in talks with potential investors from China over selling a stake in the state airline LOT [LOT.UL], Deputy Prime Minister Mateusz Morawiecki said on Wednesday.

Polish Airlines LOT Embraer ERJ-195LR aircraft taxis at the Chopin International Airport in Warsaw, Poland May 17, 2016. REUTERS/Kacper Pempel

Poland’s euroskeptic, conservative government has been looking to tighten its relations with China since coming to power last year. The two countries pledged deeper co-operation during the visit of China’s leader Xi Jinping to Warsaw in June.

“LOT is our national carrier, which we are trying to save no matter the cost. It is deeply in debt,” Morawiecki told state news agency PAP on Wednesday, adding that without a national carrier Poland would become a more peripheral country.

LOT, one of the world’s oldest airlines, has for years struggled to compete against low-cost competitors like Ryanair (RYA.I) and bigger rivals. The state-owned airline was saved from bankruptcy in 2012 thanks to public aid of more than 500 million zlotys ($130 million).

“The previous government has already granted public support for LOT, we cannot grant another and we are looking for an investor,” Morawiecki said.

“According to EU law a carrier from outside the EU cannot take over more than 49 percent of a carrier from the EU, hence we are in talks with potential investors, among others, from China,” he said.

Morawiecki also said that usually it is a very long road to finalize such a transaction.

Earlier on Wednesday, a Polish local newspaper reported that Chinese carrier Air China 601111.SS is interested in buying a 49-percent stake in LOT with a delegation from the Chinese firm expected to arrive in Warsaw over the coming days.

However, a LOT spokesman said he had no knowledge of any plans for a capital tie-up between LOT and Air China.

“I have no knowledge regarding any planned capital co-operation between LOT and Air China,” Adrian Kubicki, LOT spokesman said. “We have commercial co-operation with Air China, which we want to develop, regarding the Warsaw-Beijing route.”

Air China was not immediately available for comment.

INVESTMENT

Poland’s Supreme Audit Office said in April that despite the aid and some improvement in performance, LOT had little chance of survival without finding an outside investor.

LOT is a relatively small carrier whose widebody fleet will rise to just eight aircraft when two new 787 Dreamliners enter service next year. The company says it makes on average over 200 flights daily and carries about 5 million passengers each year.

Central and eastern Europe has seen a rise in investment from China, as the world’s second-largest economy wants to boost ties between Europe and Asia, among other as part of its One Belt, One Road initiative.

Last year, China’s sixth largest private company CEFC bought a stake in Czech airline firm Travel Service, operator of low-cost carrier Smartwings and the second-largest shareholder in Czech Airlines. [L5N11B051]

Deputy economy minister Radoslaw Domagalski told Reuters in July that Poland is ready to accept large-scale Chinese investment in infrastructure, energy and other sectors.

($1 = 3.8497 zlotys)

Editing by Alexander Smith

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