Poland’s LOT Says Looser Ownership Rule to Ease EU Aid Appraisal

LOT Polish Airlines SA’s plan to shrink operations and slash costs with the help of state aid should be eased by a law change allowing an end to government control, Chief Executive Officer Sebastian Mikosz said.

The move to waive a long-standing law requiring Poland to hold an absolute majority of Warsaw-based LOT’s stock goes before the Senate for endorsement tomorrow, leaving only the president to sign off, Mikosz said in an interview in Cape Town.

The change should help smooth the European Commission’s assessment of a restructuring plan due to be submitted June 20 as the regulator evaluates a bailout application. LOT hasn’t made a profit in five years and booked a 200 million zloty ($62 million) operating loss in 2012, even after it cut headcount by 9.8 percent and boosted the passenger count 7 percent.

“The message of the change in law is we mean business this time,” Mikosz, who returned as CEO in February after departing in 2010 and who is targeting profitability in 2014, said at the International Air Transport Association annual meeting.

The latest revamp plan for LOT, as Polskie Linie Lotnicze LOT SA is known, may be less drastic in terms of fleet and route cuts than first signaled, Mikosz said. Proposals in January had suggested the carrier would operate 25 planes instead of 40 and cut 30 percent of jobs in seeking approval for a 1 billion zloty aid package. It got a 400 million-zloty rescue loan in December.

With the restructuring and relaxation of the ownership cap, LOT, which is being advised by Rothschild, should be more attractive to potential buyers, given growth in its home market that could see passenger numbers triple to 20 million in coming decades, the CEO said.

Outside Option

While European Union rules limit the stake a company from beyond the bloc can hold to 49 percent, making a local buyer “easiest,” an outside bid cannot be ruled out, Mikosz said, citing last month’s purchase of a 44 percent stake in Czech Airlines, or Cesky Aeroholding AS, by Korean Air Lines Co.

The return to operational service of Boeing Co.’s 787 after a three-month grounding as the planemaker fixed a battery fault should help cut operating costs at LOT, Mikoskz said. Three Dreamliners are now in its hands, with two more due by August and a sixth before the year’s end. A further two will come later.

LOT selected the 787 to target the intercontinental market, where margins are higher and it can still aim to find a viable niche. The grounding stranded its first jet in Chicago after an inaugural flight and led to a $50,000 daily loss.

As part of LOT’s cost cutting moves the company has eliminated its fleet of Embraer SA regional jets, Mikoskz said.