Czech Airlines has been granted European clearance to receive state support for its restructuring programme, after an assessment concluded that the overhaul effort met the required criteria.
The Prague-based operator will be supported with Kc2.5 billion ($130 million) in state aid after putting forward a plan to cut capacity, improve its costs and revenues, and sell assets.
This restructuring "adequately addresses the financial problems" of the airline, says the European Commission. The Commission's criteria on state aid are strict, and are designed to prevent governments from artifically propping-up companies which would fail under normal market conditions.
Czech Airlines' restructuring plan involved a Kc2.5 billion loan from Osinek, a state-owned organisation, granted in 2009. While the Commission has already approved the loan - because it was secured under market conditions - it had been concerned about a subsequent debt-to-equity swap performed in June 2010.
But European competition policy commissioner Joaquin Almunia says the Commission is "satisfied" that the five-year plan, which includes selling aircraft and giving up landing slots in Europe, complies with state-aid conditions and will enable Czech Airlines to emerge as a viable company.
Czech Airlines will "adequately contribute" to the costs of restructuring by selling subsidiaries and other assets as well as securing a private bank loan for an aircraft lease, the Commission adds.