LOT Polish Airlines has a lot to think about. The most pressing issues are doubts over its cooperation with AMR Corp, its proposed codeshare with American Airlines and the refinancing of its recent fleet acquisition.

AMR Corp's ground services management contract with LOT is up for a two year extension and the Polish carrier's board is split on the renewal. One faction feels AMR's job is finished, but the opposing view is that there is still work to be done, although the services should either be cheaper or AMR be more committed, perhaps by investing in the ground services company. But AMR usually prefers to avoid equity stakes.

To cement the 'cooperative marketing arrangement' between the two companies LOT wants a domestic codeshare on American's New York-Miami and Chicago-Los Angeles routes, while American only wants to put its code on LOT's New York-Warsaw and Chicago-Warsaw flights. But the US DOT, in an attempt to pry open the skies of yet another European country, is refusing to allow LOT's codes on domestic flights, unless the Polish Ministry of Transport allows the Northwest/KLM and Lufthansa/United alliances to codeshare to Warsaw over the two European partners' hubs.

LOT says it 'is not ready for such fierce competition'. The Polish government, intent on protecting LOT, has so far refused to budge. LOT's commercial director Krystzof Ziebinski supports the MoT's position even if it were to scupper the alliance with American. 'We survived 65 years without a strategic partner,' he says.

But American's senior vice president international Hans Mirka says there is movement on both sides toward a deal, with the Polish MoT considering a phasing in of the codeshares for Northwest and United. 'We are anxious to codeshare with LOT,' he adds.

But LOT has other problems besides AMR and its airline subsidiary. The investment in a western fleet over the last five years has put a strain on the balance sheet. LOT has taken 14 Boeings and seven ATRs on long-term leases, backed by US banks. The aircraft include two 767-200ERs, two 767-300ERs, six 737-500, and four 737-400s.

LOT debt obligations are growing and this year the carrier must find $100 million for the US banks. Consequently the carrier is looking towards Japan to try and reduce the burden. 'At this moment our obligations are at their height and we are trying to restructure the debt,' says Ziebinski.

While any alliance with American looks shaky, the US carrier is helping LOT to evaluate its route network and fleet utilisation on its European and transatlantic routes.

Last year, LOT pulled out of Singapore because of poor returns and the carrier is also reassessing its Beijing and Bangkok routes. The Chinese market may appear tempting, but LOT blames the difficulty Chinese face in obtaining Polish visas for depressing traffic, while fierce competition has suppressed yields on the Bangkok route.

LOT also has problems on the domestic front. Its seven ATR72s are too large for some of the routes and the operations not making money. LOT would like to spin-off its domestic network and tap into foreign capital to buy smaller aircraft. However, some analysts are doubtful of LOT's intentions. According to LOT's former senior vice president for commercial affairs, Alex Hamerski, LOT still 'wants to do everything itself'.

Source: Airline Business