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Poland Tells LOT to Find Investor as Airline Wins EU Aid Backing

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July 29 (Bloomberg) -- Poland told national airline LOT to step up its search for a strategic investor after the European Commission approved 804 million zloty ($260 million) in state aid for a carrier that’s seen previous rescue plans thwarted.

The European Union’s executive arm backed the funding, half of which was paid out in 2012, after LOT closed routes, cut 35 percent of ground staff and added fuel-efficient Boeing Co. 787 planes to post a first annual profit in five years in 2013.

“LOT has a long and a very difficult restructuring behind it,” Treasury Minister Wlodzimierz Karpinski said today in a statement, adding that the revamp will be completed in October next year. “We now want LOT to maintain its position of leading central and eastern Europe carrier, speed up work on strategy, use its potential -- including 787 Dreamliner planes -- and actively look for a strategic investor.”

Eastern Europe’s biggest state-owned airline lost a potential savior in 2011 when Turk Hava Yollari AO, or Turkish Airlines, ended talks because of EU rules on outside ownership. The Warsaw-based carrier previously had Swissair as a minority investor, only for the Zurich-based company to fold in the wake of the Sept. 11, 2001, attacks after expanding beyond its means.

Poland is holding talks with interested parties, Rafal Baniak, Karpinski’s deputy, said in a TVN24 BiS television interview this month, while declining to name them. The state owns 93 percent of LOT, with the Treasury controlling 68 percent and a regional fund 25 percent. Staff own about 7 percent.

Star Member

Following the Swissair collapse LOT joined the Star Alliance led by Deutsche Lufthansa AG, which went on to buy the Swiss operator’s successor together with Austrian Airlines and a stake in Belgium’s biggest carrier. In recent years Lufthansa has stressed that takeovers are no longer a strategic goal.

Still, Poland’s population of 38 million, together with the 20 million ethnic Poles living abroad, may make LOT, as Polskie Linie Lotnicze LOT SA is known, attractive to some carriers.

Abu Dhabi-based Etihad Airways PJSC has specialized in minority investment in ailing airlines that bring access to untapped travel markets and can feed its Gulf hub, taking stakes in European carriers Air Berlin Plc, Aer Lingus Group Plc, Air Serbia and Darwin Airline of Switzerland and pursuing a deal with Alitalia SpA of Italy that could be sealed shortly.

LOT’s restructuring plan “is based on realistic assumptions and should enable the company to return to long-term viability within a reasonable timeframe,” the European Commission said in a statement today.

The EU also ruled in LOT’s favor in a 2012 probe into the company’s sale of units, deciding that transactions were made under market conditions and weren’t a form of state support.

To contact the reporter on this story: Maciej Martewicz in Warsaw at mmartewicz@bloomberg.net

To contact the editors responsible for this story: James M. Gomez at jagomez@bloomberg.net; Benedikt Kammel at bkammel@bloomberg.net Christopher Jasper, Benedikt Kammel