Croatia Will Favour Partner Over Price in Airline Sale

Croatia will begin the sale of a minority stake in national flag-carrier Croatia Airlines d.d. in a process that favors bringing in a strategic partner over price, Transport Minister Sinisa Hajdas Doncic said.

Prime Minister Zoran Milanovic’s cabinet agreed today to start seeking a buyer for 49 percent in the money-losing carrier, part of a plan to shore up Croatia’s public finances by selling state companies. It will keep a 50.25 percent stake, it said in materials distributed to reporters, and Hajdas Doncic said he expected the sale to be concluded by mid-2014.

A fair offer would include creating a regional hub, fresh capital and new planes to refurbish Croatia Airlines, whose routes are limited to European cities with code-sharing agreements to four U.S. destinations, Hajdas Doncic said. As many as four international companies have expressed interest, including PT Garuda Indonesia Ltd., he said.

“We are willing to look into all the possible models,” Hajdas Doncic told reporters after the cabinet meeting, without giving a timetable for the start of the sale. “The priority is that the money will not go into the budget but be invested into the company.”

A state agency will determine the value of the company in the next four months, he said, declining to elaborate on the price. In August he said the company had been valued at 350 million kuna ($64 million). The Zagreb-based company, founded in 1990 as the former Yugoslavia was breaking apart, posted a net loss of 475 million kuna ($85 million) in 2012.

‘Plan B’

Should no offers materialize, “Plan B” would include selling the company piecemeal, Doncic said. In its present state, Croatia Airlines can’t function past 2015, he said.

Croatia, the second former Yugoslav republic to join the European Union, is selling off stakes in state companies to help stop deterioration in its budget deficit. The government expects this year’s fiscal shortfall to end at 3.5 percent of gross domestic product and to widen to 5.5 percent in 2014.

While Air France-KLM Group, Deutsche Lufthansa AG and British Airways parent IAG are shying away from takeovers to focus on stemming losses at short-haul units, carriers from outside the EU have shown increased interest in acquisitions.

Eastern European airlines have attracted suitors including Etihad Airways PJSC, which bought a stake in Serbia’s largest carrier, and Korean Air Lines Co., which acquired a 44 percent stake in Ceske Aerolinie AS, the Czech flag carrier.

To contact the reporter on this story: Jasmina Kuzmanovic in Zagreb at jkuzmanovic@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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