Malev flights grounded over cashflow woes

HUNGARY’S NATIONAL airline, Malev, has ceased operations in the latest development to shake the country’s ailing economy and pile pressure on prime minister Viktor Orban.

Malev abruptly announced yesterday morning that it was grounding all flights, amid fears that its aircraft could be impounded abroad after they were not allowed to take off from Dublin and Tel Aviv airports.

Officials at Malev, which was founded in 1946, said it had run into extreme cashflow difficulties in recent days, as partners became nervous following a demand from the EU that it repay some €130 million in state aid that it received between 2007 and 2010.

Malev was effectively placed under bankruptcy protection at the start of this week, when the government shielded it from creditors by declaring it a “strategically important company”.

“Since the government can no longer provide resources due to the EU’s decision and there is no feasible partner in sight, the company’s operations became impossible,” said Malev chairman Janos Berenyi. “Every has asked for payments in advance and claims accelerated incredibly. No company can honour payments months in advance.”

Malev’s demise left its 2,600 employees facing an uncertain future and more than 7,000 ticket-holders stuck in Hungary or stranded abroad. Analysts said thousands more jobs could be lost at firms that have contracts with Malev, whose debts are about €200 million.

After failed privatisation attempts, the Hungarian state bought back a controlling stake in Malev from Russian investors in 2010, when it made a loss of some €85 million. Recent talks on possible co-operation with China’s Hainan Airlines came to nothing.

Malev’s collapse comes just days after Spanish budget airline Spanair ceased operations, and could also spell trouble for Budapest airport, which relied on Malev for 40 per cent of its turnover.

Local media reported that the government may also have to pay €1.5 billion in compensation to the operator of the airport according to a privatisation contract signed in 2005, under which the state agreed to pay a penalty if Malev went bankrupt.

“Grounding Malev is painful,” said Mr Orban. “We’ve tried to push it along and keep it flying as long as we could, but this is the end. We can’t keep this going on without the risk of losing the aircraft that are abroad.”

The company’s collapse is another blow to Hungary, which is struggling to reduce an unemployment rate of 10.7 per cent, and to conservative leader Mr Orban.

He is under huge pressure from the EU and the International Monetary Fund to reverse a number of controversial laws before they open talks on his request for a credit line of up to €20 billion.

Ryanair said it would open a base in Budapest in two weeks,bringing four aircraft and 31 new routes to Budapest airport.

The budget carrier said yesterday it carried 4.39 million passengers in January, a decline of 6 per cent year on year. The company said traffic had been expected to decline by about 5 per cent because it has grounded 80 aircraft over the winter due to high oil prices.