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End of Czech Airlines era

Wednesday, April 15, 2009, Martina Marečková
A A A Velikost textu:
Last year, national carrier Czech Airlines (ČSA) celebrated 85 years since its establishment in then-Czechoslovakia; in 2009 ČSA will reach another milestone in its long history unless the government’s plan to privatize the national air carrier is sidelined.
End of Czech Airlines era
Author: ČTK
The passenger airline business had witnessed constant growth over the past years, boosted by the aggressive expansion of budget airlines that compete against traditional airlines by offering lower prices. But the economic crisis has hit the airline industry hard. Global passenger traffic grew just 1.6 percent last year, a major slowdown compared with 7.4 percent growth in 2007, according to statistics from the International Air Transport Association (IATA). This year is anticipated to be one of the toughest years ever for international aviation with global air transport industry to post losses of $4.7 billion (Kč 94 billion/€3.4 billion) and passenger traffic to decline by an estimated 5.7 percent over the year, the IATA stated.

Amid these grim forecasts, the long-anticipated privatization of Czech Airlines attracted only four bidders. The Czech government on Feb. 5 announced a tender for the sale of ČSA. On March 23, the following bidders submitted bids for ČSA: Unimex-TVS, which is a consortium of Czech financial company Unimex Group and local operator of charter airline Travel Service; European airline Air France-KLM; Russian airline Aeroflot – Russian Airlines through its subsidiary Darofan; and Odien AV III of private equity fund Odien Group. The winner of the two-round tender is scheduled to be known by the end of September at the latest, the Ministry of Finance said.

Government reshuffles

The domestic political situation is heating up again after the government of Mirek Topolá-nek lost a no-confidence vote in March. As of press time, Czech President Václav Klaus was expected to appoint Jan Fischer, the chairman of the Czech Statistical Office (ČSÚ), as the interim prime minister. Fischer will lead the country’s interim government until early elections are held in October.

“The final decision about the sale [of ČSA] will be up to the upcoming government, and we believe that the new government will continue in the privatization process,” Finance Ministry spokeswoman Zuzana Chocholová said.

Opposition Social Democrat (ČSSD) chairman Jiří Paroubek recently publicly stated that his party would not oppose ČSA’s privatization. But earlier this year he expressed his concerns over Aeroflot possibly winning in the tender because the Russian’s firm ownership structure was not transparent, noting that the tender’s conditions were poorly drafted. “It is perhaps about economic interests of Mr. Topolánek’s friends,” Paroubek said, according to daily Hospodářské noviny.

The condition of the first round of the tender is that bidders comply with qualification criteria, while the size of the bid is the decisive criterion in the second round of the tender. The timeline depends on a set of circumstances, such as how long the examination of tender’s qualification criteria will last and whether one of the rejected bidders will appeal, the Finance Ministry said. The Czech government expects to generate up to Kč 5 billion from the sale, according to earlier estimates.

Management reshuffles

ČSA posted a pretax profit of Kč 500 million in 2008 on operating revenue of Kč 23.2 billion. “Today, Czech Airlines is a restructured company that is ready for privatization,” ČSA president Radomír Lašák said in a statement. “More than by Czech Airlines’ financial results, the outcome of privatization will be influenced by the economic crisis and the condition of other airlines,” he said, adding that he is convinced that the company’s privatization is the right step even during the economic crisis.

The carrier swung back into black in 2007 following the completion of the three-year OK 2006–2008 strategy implemented by Lašák. In January 2006, Lašák replaced on the top post Jaroslav Tvrdík, who has been blamed for the company’s multimillion crown losses. In 2005, the airline posted nearly a Kč 496 million loss against a Kč 324 million profit in 2004. While in 2003, the airline operated 33 aircraft, three years later it had 50 planes in its fleet. Industry experts criticized Tvrdík’s management for ordering expensive Airbus aircraft, signing benevolent collective agreements with union leaders and assigning a lot of costly consultancy orders.

COMPANY PROFILE
Company: Czech Airlines (ČSA)
Sector: Passenger airlines
Type of company: Joint-stock company
Ownership: 91.51 percent by the Czech state, minority shareholders: insurer Česká pojišťovna, the City of Prague, the City of Bratislava, Slovak National Property Fund (FNM)
Founded: 1923 as Czechoslovak State Airlines
Number of employees: 4,600
Competitors: Aeroflot, easyJet, SkyEurope Airlines, lately also Ryanair and Wizz Air
Annual turnover: Kč 23.2 billion
Elevator pitch: The primary focus in 2009 for ČSA management will be the company’s cash situation as the aviation industry continues to slump. The Czech state as the majority owner of ČSA aims to privatize the company by the end of September, but changes in the government may complicate the situation.
Lašák’s role was to make the company profitable again and prepare the company for privatization. But first he had to find ways of avoiding bankruptcy, such as the sale of aircraft and layoffs. His cost-cutting measures included sale of noncore assets such as the cargo terminal and catering unit, and the selling and leasing back of planes.

In 2007, the carrier sold its cargo business for an estimated Kč 960 million to Czech company Central European Handling. ČSA’s catering unit followed last year when it was acquired by Italian airline catering provider Alpha Overseas Holdings Limited. The price was not disclosed, but according to local media speculation it reached Kč 682 million. In 2007, Czech Airlines was back in the black again; the company posted a pretax profit of Kč 111 million, but its accumulated losses stood at Kč 1.4 billion.

This year, the company’s management will focus on its cash situation. “Estimating the development of passenger numbers and hence also revenue this year—when the economy is violently tossed about by an economic recession—is very difficult,” said Luboš Černý, ČSA’s vice president for finance. The carrier is working this year with three plan options, which differ depending on the estimated number of passengers, he added.

Milestones

Some of the milestones in the company’s modern history include 2001 when the airline joined the Air France-KLM-led SkyTeam alliance and 2006 when it received delivery of the first three new Airbus A320 aircraft. ČSA operates 51 planes, of which the company owns six aircraft and is paying for another 22 using financial lease of aircraft. The remaining 23 aircraft ČSA hired by means of operating leasing. The aircraft consists of three long-haul Airbus A310 aircraft, 16 Airbus A319/320/321 aircraft and 20 Boeing 737 400/500 aircraft for medium-haul routes and 12 short-haul ATR 42/72 aircraft.

In 2007, Czech Airlines introduced Internet check-in, the same year it launched its low-cost arm Click4Sky. This summer season, ČSA will offer flights to 134 destinations in 47 countries. In view of the falling demand for air travel, which the IATA expects to fall by 6.8 percent globally this year, Czech Airlines has responded with a new summer schedule by introducing two new destinations. The airline is at the end of April launching flights to Novosibirsk, Russia, and in June to Tashkent, Uzbekistan. Opening of these two new destinations in Central Asia follows a successful route to Almaty, Kazakhstan, the company said. ČSA will also add flights to Western and Southeastern Europe and the Middle East. In contrast, the company has halted its connection to Dublin, Ireland. Czech Airlines is adding the Egyptian resort of Marsa Alam to its charter destinations this summer.

ČSA carried 5.6 million passengers last year, a growth of 2.4 percent year on year. Over the last decade, the number of passengers grew by 12 percent a year on average.
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End of Czech Airlines era

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I hope soon.....
CSA employer | 1/15/2010 6:57 PM
I hope it will happen in short time. It is terrible work there under weak-minded management. They are not eligible to lead so sophisticated company as airline is. Unlike the very qualified staff through entire CSA company, started from charwomen and ended technicians or flight crews the management haven´t any experience or competence for their posts. They are only puppets of Czech politicians.
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