VILNIUS - FlyLAL, the Lithuanian flagship airline, has been forced to declare bankruptcy with around 100 million litas (29 million euros) in debts after the government refused to bail the company out and a potential buyout deal fell through.
A 1 million dollar rescue by the SCH Swiss Capital Holdings Company that would have saved FlyLAL fell through in mid-January. The airline asked the court to launch bankruptcy proceedings on Jan. 23.
Eligijus Masiulis, the Minister for Transport, has called for the Prosecutor General's Office to start an investigation into the collapse of the airline.
"I submitted the documents to the Prosecutor General's Office and they will investigate whether the actions of the owners were legal during the bankruptcy," the minister told The Baltic Times.
A special task group under the Transport Ministry has submitted documents outlining its preliminary conclusions on the shareholders' actions during FlyLAL's collapse.
Observers warn, however, that the investigation may backfire on Mindaugas Ivanauskas, a former CEO of Vilnius Airport, to which FlyLAL owes about 20 million litas. The airport, when headed by Ivanauskas, failed to force FlyLAL to pledge assets as a guarantee of long-term debt repayment. The airport only intended to take such measures in 2010.
Staras also pointed out the doubts surrounding the division of FlyLAL-Lithuanian Airlines' activities by its current shareholders after the privatization of the carrier back in 2005. The performance figures of the newly established companies were robust 's with the carrier being the only exception.
Gediminas Ziemelis, the primary indirect shareholder of FlyLAL, said some activities had been split off and some new companies had been established in an attempt to ensure the most advantageous terms of financing for the companies' activities since the balance of FlyLAL was burdened by large liabilities.
The same model has been applied by well-known global aviation groups, he said, adding that the split of activities was not a crime.
Masiulis said that when the company was privatized in 2005, it was functioning normally.
"Six companies were made out of the original company and all of them except FlyLAL are profitable," the minister said.
FlyLAL CEO Vytautas Kaikaris said that the airline would be shut down, but other parts of the company 's including FlyLAL Technics and Grounds Services 's would continue with regular operations.
"The other parts of the company will go on and lead a normal business life - they will look for normal paying customers, maybe from Russia, which we were using before and not paying for. For FlyLAL Technics, it can only be good now," Kaikaris told TBT.
In December the shareholders of FlyLAL offered a 51 percent stake in the company to the state for the symbolic price of one litas and asked for state guarantees for a 30 million litas (8.7 million euro) loan.
However, the Transport Ministry refused to aid the carrier, calling them "disgraceful" because of what the Transport Minister saw as devious business tactics.
HIGH AND DRY
Since FlyLAL was grounded in January, there has been no Lithuania-based airline, leaving thousands 's including the president 's without means of transport.
AirBaltic's Lithuanian chief, Tadas Vizgirda, told TBT that they would not fill the hole left by the bankruptcy. Kaikaris said SAS will likely step in to fill the gap in the market, offering flights from Vilnius using Estonian Air.
"SAS are now in a strong bargaining position to get the discounts from Vilnius Airport, which we could never get. It's like that 's the foreign companies get it, but the local ones do not," Kaikaris said in reference to one of the troubled company's problems.
Masiulis said many companies are in talks with the ministry to take over the leading position at Vilnius International Airport.
"SAS, SAS with Estonian Air, KLM, Aeroflot and Brussels Airlines are all talking to us and discussing the conditions. They are asking for discounts," he said.
Vizgirda said Lithuania doesn't have enough demand for air travel at the moment.
"Aviation in Lithuania has gone down with a large decrease in demand. High airport fees and a lack of a national aviation strategy led to this lack of demand. This isn't going to change now that one company has dropped out of the picture," he said.
"If we see potential and increased demand, then we will make a decision, but at the moment, we are just waiting and observing the market," Vizgirda added.
Vizgirda thinks that this is the perfect time for the industry to pull its socks up.
"Companies lose money during a crisis, but others change and become more competitive so when they come out of the crisis, they are better. This is what Lithuania needs to do 'sthey need to get their act together. When they do, traffic will follow," he said.
The ailing airline has struggled with debt for months after posting record losses in 2008, despite its highest ever amount of passengers that year.
Kaikaris said that they have tried to do their best for customers in this difficult time.
"It has been very tough 's all this week we have been trying to help our customers. We couldn't help them financially, but we have passed on information to other airlines and we have asked them to accept their tickets," Kaikaris told TBT.
KLM has said it will offer a 40-euro discount for FlyLAL customers to Amsterdam, and they will also accept existing FlyLAL tickets.
After the government refused to nationalize FlyLAL, it came to an agreement with SCH to buy the company, which included a large loan to keep the company afloat. When the deal and loan fell through, the company declared bankruptcy.