Spanair Halts Flights After Qatar Talks Fail, Government Lifeline Runs Out

Spanair SA, the Spanish airline involved in a crash that killed 154 people in 2008, ceased operations after Qatar Airways Ltd. (105701QD) halted takeover talks and the regional government refused to provide further funding.

The final flight landed at about 10 p.m. yesterday, the Barcelona-based carrier said in an e-mailed statement, citing “a lack of financial visibility for the coming months.” The closer may affect as many as 23,000 passengers this weekend and will see 120 flights canceled, spokeswoman Sandra Melendez said.

“We were in a very advanced process of finding a financial partner, but we were notified by the regional government that it couldn’t finance our operations anymore and that Qatar wouldn’t invest,” Chairman Ferran Soriano said on state-owned TVE. Closing operations was “the most prudent and safe” decision, he said. Closely held Spanair wouldn’t confirm a statement made by former owner SAS AB (SAS) that it had filed for bankruptcy.

Spanair represents the first failure of a European airline since the last recession ended in 2009, and follows other carriers that have stopped operations in recent years, including Air Madrid in 2006 and Air Comet in 2009. Regional authorities in Spain are cutting spending to reduce debt as the nation grapples with the euro area’s third-largest budget deficit.

‘Stranded Passengers’

Spain’s unemployment rate rose to 22.9 percent in the fourth quarter, the highest in 15 years. Catalonia, Spain’s largest and second-most indebted region, has “done all in our hands to save” Spanair, Artur Mas, the region’s president, said in an interview on TVE.

Spanair, the fifth-largest airline by passengers in Spain, is legally obliged to take care of travelers affected by the closure and must produce a plan to help them, the country’s development ministry said yesterday. Stranded passengers should be relocated to other flights and have their tickets reimbursed, Ileana Izverniceanu, spokeswoman for consumer-rights group OCU, said in an interview on TVE.

Madrid and Barcelona airports are operating as normal and two rooms have been set up and made available for affected passengers, said a spokeswoman for airport operator Aena, declining to be named in line with company policy.

Iberia, the Spanish unit of International Consolidated Airlines Group SA (IAG), is offering special fares to Spanair passengers, it said last night. Vueling Airlines SA (VLG) and Air Europa are providing reduced fares, Spanair’s Melendez said.

‘Seeking Protection’

Spain’s development ministry has started the procedure of fining Spanair for two infringements of the nation’s Air Security Law, it said in an e-mailed statement today. Those fines could each be of as much as 4.5 million euros ($5.9 million), and the airline could lose its operating license, the ministry said.

The Spanish airline, which has more than 2,000 employees, is looking at options “including seeking protection from creditors or filing for bankruptcy,” though no decision has yet been made, Melendez said by phone today.

“The airline industry has become a game of big players and Spanair was tremendously weak,” Francisco Salvador, a Madrid-based strategist at FGA/MG Valores, said today by phone. “Tough competition from carriers such as Vueling Airlines or Ryanair and the Spanish economic crisis didn’t help either.”

Spanair, founded in 1986, operated from 15 Spanish airports and had routes to Europe, Africa and the Middle East. SAS, which sold 80 percent of the airline in March 2009 and now holds 11 percent, said in a statement it will write down the value of its remaining stake by 1.7 billion Swedish kronor ($252 million).

Spanair carried 12.56 million passengers in 2011, making it the fifth largest in a ranking led by Ryanair Holdings Plc (RYA) with 34.17 million passengers, and followed by IAG’s Iberia, Vueling and Air Europa Lineas Aereas SA, according to Aena.

“Spanair should have merged with another airline as its airplanes were too old and its brand image was completely destroyed after the crash,” Salvador said. “This will be a respite for Iberia and Vueling as they will gain market share and avoid competition from Spanair’s price-aggressive strategy.”

To contact the reporter on this story: Manuel Baigorri in Madrid at mbaigorri@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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