Balkan Bulgarian Airlines is seeking to bolster its unprofitable operations by exchanging part of its western fleet for new aircraft in an attempt to source cash from financiers and lessors.

The airline has had preliminary discussion with financiers and lessors about acquiring up to six B737s to add to the three B737-500s on lease from Awas. It is understood the carrier would return its three remaining A320s to lessor Orix but retain two B767s leased from Air France.

The airline has had difficult relations with its financiers and sought to renegotiate all of the leases last year after defaulting first on the B737s and then the A320s. Last December, Eurocontrol seized one A320 at London for non-payment of fees and Orix repossessed another in Amsterdam. The government injected US$20 million to clear all arrears but the airline still has a negative net worth.

Balkan has lagged behind its central European rivals CSA and Malev in failing to source overseas capital and continues to lack direction. The fleet changes are viewed with scepticism by analysts in the region, who doubt that either new or used B737s will offer better economics than the A320s. The airline also operates 22 Tu-154s with an average age of 15 years and is negotiating to replace these with 16 Tu-204s in a countertrade deal with the Russian manufacturer.

The airline has struggled through the first half of this year and is still awaiting a US$70 million state injection promised last year. Losses in the first six months climbed to Lev1.8 billion (US$7.8 million) from Lev650 million a year earlier. No formal accounts have been filed for 1995 but passenger numbers dropped by 12 per cent to 1.27 million.

The prospects for a recapitalisation from the government remain slim, while Bulgaria operates under an austerity plan agreed with the IMF last year. However, Balkan is one of 70 firms scheduled to be restructured and privatised to meet IMF requirements.

Bulgaria's privatisation agency shelved plans for a trade sale in early 1994 on the recommendation of advisers S G Warburg. While Sofia remains at the heart of an attractive catchment area for traffic from the Balkans, its appeal has waned as tourism to Black Sea resorts has dropped sharply over the last two years.

Doug Cameron

Source: Airline Business