Colin Baker/LONDON

Speedwing's management contract with Olympic Airways ended after just 12 months following a decision by British Airways, the consultancy's parent, not to put cash into the Greek flag carrier. Athens is casting around for new investors in its struggling airline.

Speedwing, the management consultancy arm of BA, had a contract to run Olympic to the end of 2001. This was terminated, however, after BA declined to take up an option of a 20% stake in the Greek carrier.

Olympic has well-publicised cash flow problems, which have only been partly alleviated by the sale of key assets, including its New York office. Rod Lynch, head of the Speedwing team in Athens, made no secret of the fact that the BA stake, and the extra capital it would generate, was crucial to the airline's strategy.

A BA source defends Speedwing, saying it has "considerably improved operating performance and punctuality, and had relaunched and upgraded the product." He claims there has been excessive government interference in the airline.

However, critics cite a lack of communication with Greek managers as a key problem. One commentator says Speedwing used the latter as "dogsbodies to produce information."

This lack of communication led to a number of problems. For instance, the carrier's decision to pull out of the Athens-Melbourne route three weeks before the Greek general election was described by one source as "politically misjudged". Melbourne is the centre of Australia's Greek community. Olympic was forced to backtrack and drop the Athens-Sydney route instead.

Speedwing also came under fire when it announced 333 "action areas" when it took over the airline, which some argue was over ambitious. One commentator says this "suggested arrogance".

Other strategic decisions to be criticised included an attempt to set up an Athens-Manchester-Toronto route that was pulled when management realised that Greek regulations would require a crew change in Manchester. Speedwing also planned a New York-Athens-Bangkok service at a time when BA was cutting back on low-yield traffic. A planned Athens-Tehran link was ditched after low traffic forecasts.

Some commentators feel that Speedwing started off on the wrong foot. Aviation consultant professor Rigas Doganis, who was Olympic chief executive in 1995-6, argues that the expansive business plan that Speedwing presented to Brussels when it took over the airline was a mistake. "The surest way to turn round a struggling airline is to cut back. It is much more difficult to expand out of trouble," he warns.

Doganis feels that Speedwing can take some satisfaction from its product improvement and fleet-renewal programme. Olympic has 15 Next Generation Boeing 737s on order on a 10-year lease through GE Capital Aviation Services (GECAS), consisting of 11 737-700s and four 737-800s. As part of the deal, GECAS is buying Olympic's 11 ageing 737-200s and leasing them back to the carrier until the new aircraft arrive. However, Doganis warns that the airline will be left exposed once the leases run out.

In the meantime, the Greek government has appointed Credit Suisse First Boston to seek new investors now that BA has pulled out. It is reported that Athens would prefer a partnership between a Greek shipping family and a major carrier. Analysts see the most likely suitors as a European airline with a relatively weak intra-European network, such as Swissair or KLM.

Alitalia is also seen as a possibility, with one commentator saying this would provide the Italian carrier with the ability to "lock up that end of the Mediterranean." There is little overlap between the two carriers, although Alitalia must wait until 2001 before it can invest under the restrictions imposed by Brussels as part of its state-aid approval two years ago.

Although the Greek Government has set an optimistic five-month timetable, analysts believe that the chances of an investor stepping forward in the near future are somewhat remote.

Despite its problems, which include poor service levels, unprofitable domestic routes and what one commentator described as "cheap" ticket sales, Olympic has some selling points.

The airline is about to move to a new airport in Athens, serves a major tourist destination, and is based in a country isolated from western Europe and thus reliant on air travel. In addition, Doganis points out that under European Union guidelines, those unprofitable domestic routes meeting social objectives could be put out to tender and then subsidised.

However, problems clearly remain. The government has appointed a new interim management team, with Dionysios Kalofonos, formerly chairman of the Greek civil aviation authority, made new president and chief executive, taking over the roles of Lynch and former chairman George Zigoyiannis.

Doganis warns that the government should have left Zigoyiannis in place to provide some level of stability and continuity as it searches for new investors.

Kalofonos, meanwhile, has a reputation for being very close to the unions, which is unlikely to reassure potential financial investors.

Source: Airline Business