Hungary's national airline Malev halts operations

Hungary's national airline Malev, which has been making losses for years, was grounded Friday almost a month after the European Union said the carrier had to pay back state aid. "At 0500 GMT on February 3, after 66 years of almost continuous operation, Malev stopped taking off," Malev chief executive Lorant Limburger told a news conference. The immediate reason was a refusal by Israeli ground staff to service a Malev flight in Tel Aviv without immediate payment of a "hefty sum," Limburger said. This would have set a precedent and the airline would have been unable to foot further similar bills, he explained. "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," Malev chief Laszlo Berenyi said. "Every (partner) has asked for payments in advance and claims accelerated incredibly. No company can honour payments months in advance," he said. Partners became jittery after the European Commission ordered Hungary's flag carrier on January 9 to repay various forms of state aid received between 2007 and 2010 amounting to 38 billion forints (130 million euros, $171 million), a sum equal to its entire 2010 revenue. The EU decision prevented Malev's owner, the Hungarian state, from providing liquidity to the stricken airline. However, Budapest moved Thursday to prevent a forced grounding of Malev, appointing an administrator to shield it from creditor claims. It also declared Malev a "strategically important company," a status that prevented the launch of bankruptcy procedures against the carrier. Lead administrator Balazs Fabian said however that "now that the company has become insolvent, the (courts) can move to launch bankruptcy procedures. "The company will soon announce mass layoffs," he added, without specifying how many of the 2,600 staff would be affected. Aviation analyst Ferenc Turi from the Capitol Consulting Group warned "the loss of Malev translates into the loss of about 10,000 jobs at several hundred subcontractors of the company." Following Friday's announcement, Prime Minister Viktor Orban told state radio MR1-Kossuth that a new national airline could be established if investors were prepared to operate it profitably and risk their own money. For industry analysts, many of whom saw Malev's demise coming, this would take at least six to 12 months however. In the short term, it was more likely that competitors would appear "to plug the gap," Turi told AFP. All three low-cost airlines flying to Hungary have already announced special deals for former Malev passengers. Meanwhile, Budapest airport will lose the 40 percent of its traffic which was generated by Malev, according to the government. The airline's demise threatens even more headaches -- its privatisation contract signed in 2005 requires the government to pay 1.5 billion euros to the airport operator -- majority-owned by Germany's Hochtief -- if Malev goes bust, according to Turi. Friday afternoon, nine of the airline's 22 leased planes were already set to be flown to US aircraft leaser ILFC's Irish base, MTI said. Some 3,500 passengers were stranded at Budapest's Liszt Ferenc Airport after Malev informed them all flights were being grounded, while a further 3,700 were stuck abroad. The latter could purchase tickets from other companies and send the bill to Malev for reimbursement, the carrier said. Hungary also set up this week a two-billion-forint fund to compensate passengers set to fly on Friday and the next three days. According to Hungarian newswire MTI, 64 Malev flights were scheduled to fly from Budapest on Friday. The airline -- sold to Russian investors in 2007 but effectively re-nationalised in 2010, with the state buying a 95-percent stake -- posted a loss of 24.6 billion forints in 2010 but had forecast improved figures for 2011.