Hungary Tries To Save Malev After Aid Ruling

January 9, 2012

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Hungary scrambled for ways to save national airline Malev on Monday after the European Commission ordered the loss-making carrier to repay hundreds of millions of dollars of illegal state aid.

The ruling comes at a sensitive time for Budapest as it enters the next round of discussions with the International Monetary Fund and the European Union on financial assistance to shore up market confidence in its finances.

The EC ruled that Malev would not have been able to obtain similar financing from the market on the terms granted by the Hungarian authorities, and was unable to demonstrate how it would become viable again under its current business model.

"The Commission's investigation concluded that Malev, given its consistently difficult financial situation, would have been unable to secure such financing on the market on the terms conceded by Hungary, nor possibly any financing at all," the EC said in a statement.

After failed privatisation attempts, Hungary in 2010 bought back all but a 5 percent stake in the carrier, which employs 2,600 people and accounts for 40 percent of the annual turnover of Budapest's international airport.

The Commission listed various forms of state financing for Malev adding up to HUF64.1 billion forints (USD$257.45 million) and EUR€76 million (USD$96.63 million).

A Commission official said it was up to the Hungarian authorities to define the final total to be repaid.

Hungary's Development Ministry said it was in Hungary's economic interest to have a national airline operating from Budapest, adding that it had several unspecified scenarios to work with to tackle the situation.

"The existence (of Malev) is a basic factor in foreign investment decisions and it contributes to strengthening the regional role of the country," the ministry said in a statement.

"With a view to all this, the government considers that it is definitely necessary to have a Budapest-based national carrier running and will make fast decisions in this spirit in the near future," it said.

It said the government would discuss the ministry's proposals regarding the future of Malev, which made a HUF24.6 billion forint loss in 2010, at its January 16 meeting.

Malev said the EU Commission ruling would have no immediate impact on its daily business, its flights ran on schedule and it was paying its suppliers with no interruption due to state assistance.

"Malev expects a significant improvement in operating results in 2012 on the basis of its commercial results achieved in the final quarter of the past year," it said.

Last month Development Minister Tamas Fellegi, who had since resigned to focus on Hungary's aid talks with the IMF and the EU, said Hungary was again looking for a buyer for Malev.

He said Budapest was in talks with unnamed European investors on forming a new carrier after talks with Chinese investors on a similar deal fell through. Fellegi then forecast a final deal materialising in the spring of 2012.