Hungary's Government has stepped in to rescue struggling flag-carrier Malev, retaking control of the airline three years after its privatisation.

The Government, via state holding company MNV, has agreed to acquire a 95% stake in Malev through a Ft25.2 billion ($127 million) investment funded partly by cash and partly by debt conversion.

Malev is in financial difficulty and the new agreement states that its equity situation and liquidity "need to be resolved". It adds that the pact aims to ensure that steps needed for the "rescue and restructuring" of Malev are carried out in a "timely and efficient manner".

The finance ministry says that the acquisition will clear the way towards creating stability for the troubled airline. But the ministry warns that "intensive" restructuring is required in order to minimise the burden on taxpayers and ensure that the rescue does not constitute illegal state aid.

Malev is to become profitable by 2012 at the latest, it says: "In order to achieve this, further tough measures can be expected in the operation of the company." These will include employee layoffs, network reorganisation and renegotiation of supplier contracts.

Malev 737
 © Malev

Malev was sold, in its entirety, to the private group AirBridge in 2007, in a bid to improve the flag-carrier's prospects.

But the subsequent poor economic climate obstructed Malev's development. AirBridge's shareholders included Russian entrepreneur Boris Abramovich, whose airline operations - including KrasAir - subsequently collapsed, and his stake in AirBridge was transferred to financial firm Vnesheconombank.

Under the deal AirBridge retains a 5% share in Malev. Vnesheconombank is no longer a stakeholder but becomes a major creditor of the airline.

Vnesheconombank is to provide €32 million ($44 million) to MNV under a loan repayment guarantee, and Malev will replace loans obtained on unfavourable terms with lower-interest borrowing.

Malev chief executive Martin Gauss will remain in his position.

Source: Air Transport Intelligence news