Current Affairs Czech ministry mulls imaginative airport lifeline for struggling airline

The idea that the 100 percent state-owned company which runs Prague airport buys into the national airline has surfaced in recent days as a standby solution if the planned privatisation of Czech Airlines hits the rocks.

The sale of Czech Airlines looks increasingly problematic. The only bidder that remains in contention, a consortium made up of Czech companies Unimex and charter carrier Travel Service, was due to table its final offer on Wednesday.

Photo: www.csa.cz Even ahead of that deadline speculation has been mounting that the offer will fall short of the state’s expectations. Czech Airlines made record losses in the first half of this year and there have been increasing calls for the sale to be shelved until the crisis-hit aviation sector appears in better shape and the airline has been restructured.

The idea that the lucrative airport — the busiest in Central Europe — takes a stake in the airline is being considered in the Ministry of Finance as a possible solution if the privatisation finally crashes.

For the ministry, the creation of what could be a state aviation colossus is attractive. It would allow the government to throw a lifeline to Czech Airlines without the government giving it direct support, something which the Finance Ministry has ruled out doing.

But the move would be extremely unusual. Petr Kováč works in the corporate finance division of the stock brokerage Patria.

Petr Kováč “The simple acquisition of an airline by an airport is very rare. I do not know of any such situation in Europe. I think that the opposite is possible, for example, British Airways is the owner of [Heathrow] terminal 5 and there is Aeroflot, but no airport is the owner of an airline”

For its part, the ACI, a Brussels-based association which groups around 400 European airports, says it has never heard of an airport taking over an airline.

Supporters of the marriage say the deal makes some commercial sense because the airport and airline’s interests are similar. Czech Airlines is by far the biggest airline operating at Prague airport. It accounted last year for 45 percent of all flights in and out of the airport and a much greater proportion of onward transfers.

But the idea that what is good for Czech Airlines is good for Prague airport and vice versa has some flaws. The airport earns a considerable amount of its income from the landing and taking off fees which airlines are charged. Here, their interests clearly diverge.

And Patria’s Kováč points out that there could be considerable competition issues raised by the combination.

“I can imagine it would create big problems because an airport as such is a local monopoly and is therefore obliged to treat all customers — airlines — in the same way. So I can imagine the ownership of a major carrier by an airport as a problem.”

So, if the imaginative marriage finally flies, it can be sure of one thing: thorough scrutiny from local and probably European competition authorities. They will want not only to make sure that the deal does not contain any illegal state support for Czech Airlines but that it does not involve discrimination against other carriers using the airport.