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Croatia Airlines in line for state support to stabilise carrier

In the aftermath of the collapse of Slovenia's Adria Airways, the neighbouring Croatian government is seeking to avert a similar risk to flag carrier Croatia Airlines after setting out conditions for a capital injection.

Prime minister Andrej Plenkovic has set out the conditions in relation to an initial Kn100 million ($14.8 million), which it describes as the "first part" of a Kn250 million advance necessary to stabilise operations at the airline.

Croatia Airlines had disclosed on 19 September that the government had approved a decision on creating prerequisites for a Kn250 million recapitalisation.

Plenkovic recently cautioned that the Croatian carrier needed to be "financially ready" for the next stage and that the government had embarked on a strategic partnership process for the carrier.

The recapitalisation and partnership process is intended to support expansion of the airline's network, renew its fleet, and develop its technical services, he adds.

He says the decision is being made to avoid disruption to Croatia Airlines' activities and the possible impact on the Croatian economy.

The ministry of transport has formally requested an initial Kn100 million from the finance ministry, and will be tasked with monitoring the spending of this allocated funding.

Croatia Airlines will be obliged to submit to the transport ministry a report on expenditure – which will need to include statements of purpose and copies of invoices – and this ministry will, in turn, be required to provide the finance ministry with an assessment of whether the funds have been spent appropriately.

Plenkovic says the government believes Croatia "needs a national carrier" to provide connectivity and to strengthen trade and tourism.

Stabilisation of the company is intended to precede an effort to provide further funding by the state as well as "other interested investors", says the government.

Croatia Airlines, as Adria was, is a member of Star Alliance. Its fleet is similar to Adria's and the two airlines' capital base airports are just 120km apart.

The flag-carrier's activities are highly seasonal, it says, with more than half its passengers transported in the third quarter. Competition in the summer season is strong with almost 100 carriers operating in the Croatian market compared with around 15 in the winter.

Croatia Airlines, as a result, turned in an operating loss of nearly Kn80 million for the first half of this year despite a profitable second quarter.

Its short-term assets totalled Kn285 million compared with short-term liabilities of nearly Kn745 million.

Adria Airways had been privatised three years before its collapse at the end of September. Slovenia joined the European Union in 2004 and its government had been unable to intervene on Adria's behalf, owing to EU state-aid restrictions, after providing previous support to the airline. Croatia joined the EU in 2013.

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