Gus Vlassis/ATHENS

The Greek Government is examining a controversial plan which would see struggling flag-carrier Olympic Airways split into two, with one half holding the company's huge debt and the other retaining all airline operations with a view to privatisation.

The scheme, revealed by the Socialist government's telecommunications and transport minister, Chris Verelis, envisages that around 65% of the airline operation would be sold, with the funds raised then injected into the debt-holding division, eliminating its debts and thus rehabilitating the carrier.

The proposed new "remedy" for Olympic was disclosed following a meeting of the Greek cabinet, with Verelis suggesting new thinking was necessary in the absence of a private buyer for the airline. Olympic had hoped for investment from British Airways, but the UK carrier pulled out of the deal.

The legal framework to be adopted by the planned 'new' Olympic is unclear, and though all personnel would apparently be retained by the operational side, they would have new contracts and employment conditions.

The Verelis plan was immediately dismissed by the opposition New Democracy party as the latest in a series of irresponsible experiments with the national carrier, and unions also oppose the scheme.

It is unclear where investment in the operational division would come from, or whether its sale could raise the cash to pay debts and fund fleet commitments and a much-needed general revamp.

Greek taxpayers have already contributed a trillion drachmas ($2.6 billion) to Olympic since the carrier was re-nationalised in the 1970s, although the chances of the airline receiving further government cash seem remote, given the need for European Commission (EC) approval.

The EC would likewise need to approve the Verelis scheme, and could take a dim view of any move to relieve the airline of responsibility for its debts. A highly-placed Brussels source says the EC is aware of the plan, and that the chief concern would be whether the sale of the airline would raise enough cash to pay off Olympic's debts and obviate a further aid application. The source adds that the rescue of state-owned French bank Credit Lyonnais, approved by the EC in 1998 prior to its privatisation the next year, provides a precedent.

Olympic's creditors would also demand assurance that charges would be paid, although much of its debt is actually owed to other government departments.

Source: Flight International