Olympic Airways is set for privatisation next year - but massive fines imposed by the European Commission (EC) may doom the deal before it can succeed.

The Commission announced last week that Greece's flag carrier would have to pay €194 million ($194 million) in back taxes, because the Greek government's decision not to collect certain taxes from Olympic for several years qualified as an illegal state subsidy. The government plans to appeal over the next two years.

Unless the Greek government can resolve the case quickly, it will impede the planned privatisation of Olympic, which is set to be sold to Golden Aviation for about €150 million. Golden Aviation's negotiations on the deal should be finished within two months.

If Golden Aviation - headed by shipping magnate Stamatis Restis - agrees, Olympic will be restructured around its holiday airline subsidiary Macedonian Airlines, much as the old Swissair was rebuilt around Crossair. But if Restis turns down the deal, Olympic rival Aegean Airlines is expected to step in.

Olympic employees have halted anti-privatisation protests, realising that a sell-off could be the only way of ensuring the airline's survival, but have asked to be informed of the deal's progress. They are also seeking assurance from the prime minister that no jobs will be axed.

Although EC transport commissioner Loyola de Palacio has set herself firmly against state aid to airlines, the Greek government is under pressure to keep its flag carrier afloat until the Olympic Games in Athens in 2004.

Source: Flight International