Bosnia's BH Airline Grounded Over Debt

March 5, 2013

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Bosnia's BH Airlines has been grounded and faces possible bankruptcy over an outstanding bank debt, a senior government official said on Tuesday.

The Sarajevo-based carrier is solely owned by Bosnia's autonomous Muslim-Croat Federation, after Turkish Airlines pulled out of a joint venture in June last year and handed its 49-percent stake over to the government.

Enver Bijedic, the Federation's minister for transport and communications, told reporters that flights had been halted due to claims of BAM7 million Bosnian marka (USD$4.6 million) by the Bosnian arm of Austria's Hypo Alpe Adria Bank.

Last month the bank froze the airline's accounts over an unpaid BAM5.5 million marka leasing loan for two ATR 72 aircraft and a BAM1.5 million marka rehabilitation loan. Bijedic said BH Airlines had deposited collateral of roughly the same amount with the bank.

The bank confirmed in a statement that it had frozen the accounts of BH Airlines because of significant outstanding debt and delays in the payment of the leasing loan.

"We did not rush with this decision and the blocking of accounts was the last option," the bank's statement said.

"The bankruptcy of BH Airlines is not in our interest," the bank said, adding it expected the airline's management to consider all options to relieve its financial problems and ensure operations continue.

Hypo Alpe Adria is in the process of rolling back an ambitious expansion into southeastern Europe in an attempt to shrink itself back to health.

Under a 2005 contract with Hypo Alpe Adria's leasing arm, BH Airlines bought two 66-seat ATR 72 aircraft worth a total of USD$18.4 million.

"The company has paid back USD$15 million under the leasing loan, while these two planes are today worth USD$9 million," Bijedic said, blaming the debt on the airline's previous management.

He said the airline had offered the bank a new deal to pay off the debt from the sale of the two aircraft, topped up with a further USD$550,000 from the government.

"We have proposed to level the balance with the bank," Bijedic said. "If they decline, BH Airlines will go bankrupt, which means that everybody will face a loss," he said, adding that the Bosnian arm of the bank had sent the offer to its Austrian headquarters.

"We have already conducted early negotiations with Airbus to buy one 160-seat Airbus A319 aircraft under a favourable agreement, so we would then be able to resume flights," he said.

Goran Jovanovic, president of BH Airlines' supervisory board, said he was hopeful the matter could be resolved and flights resumed.

BH Airlines receives an annual government subsidy of BAM2.7 million marka, as well as proceeds from departure taxes at Sarajevo airport.