The management at LOT has got its hands full. Not only is this year crucial for the third attempt at a partial sell-off but the Polish carrier is also introducing five new aircraft, resulting in the biggest single capacity hike ever.

After the government blocked the first attempt at selling off the carrier in 1993, amid controversy over the appointment of the advisor, the second bid failed last year when the Polish ministry of transport found it could not afford the fees proposed by any of the six shortlisted consortia of advisors.

Since then, however, the responsibility for LOT has been transferred to the Polish treasury, although Andrzej Wysocki, assistant to LOT's president and CEO, adds that with the current political instability in Poland any decision on appointing an advisor will 'probably take another six months at least.' A newly-established government commission, consisting of the transport and treasury ministers, is tasked with this decision. Under the privatisation legislation the partial sell-off of LOT must be completed before the end of July 1998.

LOT's vice president commercial, Tadeusz Postepski, says that privatisation is important to LOT 'because we need the extra capital.' Indeed, the carrier's achievement of becoming the first eastern European airline with an all-western fleet has cost it dear. Annual aircraft financing payments alone run to US$120 million and account for 26 per cent of the carrier's total costs, for its fleet of 11 B737s, eight ATR72s and 4 B767s.

In a bid to tap extra capital Postepski says management is considering 'speeding up the privatisation process' by issuing convertible bonds, exchangeable for shares when the sale proceeds.

The carrier needs to finance the addition of five more aircraft this year under leases arranged by Chase Manhattan and local bank PKO and guaranteed by the US Eximbank.

The addition of two B737-400s for short-haul routes, two B737-300s for charter operations and one B767-300ER for transatlantic services represents a 30 per cent increase in capacity. LOT is aiming for 14 per cent growth in passengers this year, following a 10 per cent rise in 1996 to just over 2 million.In 1998 LOTalso aims to lease 50-70 seater regional jets for high-yield routes, such as Münich, Hamburg and Helsinki.

Financially, the core airline is struggling to remain profitable with unaudited losses of US$13 million in 1996 on revenues of some US$470 million. Postepski blames the losses on: the need to repay all outstanding government debt in the runup to privatisation; a US$20 million payment to Boeing to reserve slots for its order of eight next-generation B737s; a rise in salaries, which now account for 12 per cent of total costs; the aircraft finance payments and the devaluation of the zloty. But Postepski adds that he expects the audited accounts to show a profit with earnings from subsidiaries pushing the result back into the black. He predicts 1997 operating revenues should reach US$508 million with total turnover exceeding US$600 million.

The carrier is looking to trim a further 3 per cent off costs this year and will seek union approval for 300 redundancies. From May, the airline will transfer its ATR72s into a lower-cost subsidiary, Eurolot.

On the alliance front, the carrier is looking to extend its co-operation with CSA and Malev. LOT began codesharing with Alitalia in April on Warsaw and Krakow to Rome and Milan and is also in talks with Iberia.


Source: Airline Business