Monday, November 26, 2012

Aid for Croatia Airlines ahead of EU entry

Croatia Airlines gets capital boost and cuts jobs

The Croatian government has approved a major capital injection for its national carrier, prior to the country’s entry into the European Union, so as to avoid strict competition regulations. Croatia Airlines will receive 106 million euros in fresh equity capital from the Croatian government as part of a capital increase. The investment is part of a turnaround plan to make the national carrier profitable from 2013 with Croatia Airlines also planning to gradually cut 10% of its staff within the next two years. The government will make its payment in two stages. It will first provide 86.2 million euros to cover Croatia Airlines’ debts and a further 19.8 million euros to help the airline become more competitive.

Croatia Airlines suffered a net loss of 1.4 million euros in the first nine months of this year, down from 4.2 million over the same period last year. The government continues to stress the need to restructure the company in order for it to continue operating. During the first nine months of the year, Croatia Airlines carried 1.550.000 passengers, an increase of 3.5% on 2011. The average cabin load factor stood at 70.3%, up three points.

While Croatia Airlines already sees strong summer competition at its secondary bases on the coast, it is now facing tougher competition in Zagreb as well. The airline will soon have to compete against British Airways on its London route and has had to deal with the arrival of Qatar Airways which has tapped into its passenger base that use Frankfurt and Munich as transfer hubs. Croatia Airlines has already announced a string of new flights for the 2013 summer season. It will also significantly boost its services to the “European capital” Brussels from six per week to eleven.

Croatia is set to become the 28th member state of the European Union on July 1, 2013. The government has ushered in the capital injection before it is obliged to follow EU regulation. State aid is not prohibited in the EU, but it has to be assessed as an investment and is allowable only if it is considered that a private investor would be prepared to make the same investment. Furthermore, state aid includes not only aid received from the central government, but also aid from other entities such as local authorities or companies owned by the public, such as airports which Croatia Airlines duly enjoys.

17 comments:

  1. Hmm so what might they do with 20 million to become more competitive?

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  2. For 100 million I would want to see at least 20% jobs cut and the 4 A319's start to arrive from next year!

    This is a pathetic amount of waist and I really hope that all the cash is accounted for but I'm scared that it will end up in the pockets of fools who have not learnt that they wont get away with this kind of behaviour.

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  3. I tend to agree I hope its spent wisley but I'm worried it won't.... Dunno what the current workforce is for croatia and won't comment but the fleet would definetley be must wit that sort of injection.

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  4. This cash injection, if implemented properly, could be one of the wisest moves the Croatian government will make regarding the airline since its founding, and put it on good footing for the future.

    There's actually a very clever way to keep the staff, and spend that money wisely without it being pilfered. Buy two more Q400s to operate regional flights - and unlike larger 319s/320s, could be used year-round. It would allow them to operate both profitable European business routes (MXP, WAW, SOF) and more regular routes within the exYU...

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    1. But can Croatia (country) really afford it and does Croatia (airline) really need it when it looks like there plan to reduce costs has actually worked on its own.

      I fear it might be a part of some stupid attempt to plunder as much money before Croatia enters the EU.

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  5. I agree the injection is a dream send however the concern is will it be used wisely which we hope.... I agree wit regional operations however lets hope there idea for domestic operations doesn't counter trying to more so strengthen the regional routes.

    I stil would hope all of the ex-yu carriers would implement actual Aviation based CEO's ESP the Majors Jat Cro and Adria as injections like this would be properly dealt with unfortunetley i dont see it in the near future.

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  6. Belgrade is featured on the first page of Qatar Airways review for November, with a 4-5 pages article-guidebook about the city.
    http://www.oryxinflightmagazine.com/emagazines.html

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  7. Lufthansa and easyJet each announced 1 additional weekly rotation to Zagreb, LF for the summertable and eJ for the peak summer period of 2013.

    http://www.aerosvijet.com/index.php?option=com_content&view=article&id=3170:umjesto-etiri-iz-zagreba-u-berlin-pet-puta-tjedno&catid=1:hrvatska

    http://www.aerosvijet.com/index.php?option=com_content&view=article&id=3169:na-ljeto-svakoga-dana-osim-subotom-iz-zagreba-na-gatwick&catid=28:zrane-luke

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  8. It is absolutely not true «also aid from other entities such as local authorities or companies owned by the public, such as airports which Croatia Airlines duly enjoys”. Croatia Airlines doesn't get any aid from local authorities or airports, at all.

    This capital injection is not real money but Republic of Croatia will convert debts of its own company to Republic of Croatia. On that way Republic of Croatia will convert those debts to capital increase. Just minor part of amount will be paid to others whom Croatia airlines owed money.

    In same time Croatia airlines must finish restructuration by which company will be changed not to make more debts like this in near future. Unfortunately this restructuration program, exempt very short summary, is not jet published and not even sent to those who must give confirmation, what was promised they will get till middle of last week. That makes suspicions if this restructuration is real one or just pro forma document.

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    1. That sounds much better.
      Croatian's would be mighty pissed if there government can come up with 100 million for just one company while at the same time introduce new taxes and austerity measures for its citizens.

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  9. Croatia Airlines better make the best of it because this is the last dime they will see from the government. Remember Malev?

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  10. Clever...
    To enter the EU debt free before it is too late.

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  11. I would love to see Croatia Airlines expand and grow and become profitable...

    but somehow I am sooo sceptical about their future :(

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  12. It is not true that you can not get money, even help in EU, but there is rules and procedures how to do it, and by which condition.

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  13. How is OU's fleet distributed over its hubs in HR? E.g. how many a/c in ZAG, how many in SPU, i tako dalje..



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    1. Zagreb is the only Hub, with entire fleet based there, but Split, Zadar, Dubrovnik and Pula are focus cities with substantial OU presence, i.e OU dominates as largest provider.


      Just to add to this conversation regrading OU's financial injection. I hope most of you are aware its only financial consolidation, imply state is taking over any debts incurred by the OU's operations, including bad debt, loans and financial obligations towards Airbus for purchase of 4 new A319.

      Otherwise OU would face bankruptcy, with the tough EU competition from likes of Lufthansa, British Airways and Air France/KLM, all of who are eying Zagreb as one of their main regional destinations .

      This financial injection/consolidation won't bring any new funds to the Airline, give airline improved competitive edge or make airline any better off than currently is, what this will do is just consolidate OU's financial books and ensure Airline is better prepared for EU competition without worrying about bad debts and massive baggage train it needs to worry about.

      Airline as it is has manged to reduce all its debts dramatically over past few years from 30 million euro, down to 4 million in 2012, and this is primarily due to massive debt CA incurred over past 20 years of operations, without interests and loan repayments CA would have had generated good profits for the state and the airline itself, which now airline will be able to as a result of State taking over bad debts and loans taken by OU over past 20 years.

      This financial consolidation will make airline more attractive as a potential investment in the future, give it a clean balance sheet and ensure Airline is a profitable and able to provide good level of service.

      Also this will allow airline to purchase agreed 4 Airbus A319 aircrafts agreed on in 2008, with airline than having 17 aircraft in its inventory it'll be able to provide better service, larger network of destinations and overall airline will be far more interesting as a potential investment by the big 3, Air France/KLM, Lufthansa Group or BA Group.

      Croatian Government isn't stupid they know what they're doing, but consolidating the airline and expanding it bit they could get far better offers come 2014/15 for the airline that they could ever with airline as it is now.

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  14. Wow Croatia is still alive

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