Swedish low-cost carrier signs deal to purchase LAL

  • 2006-02-15
  • Staff and wire reports
VILNIUS - FlyMe, a Swedish bargain airline, has signed a deal that will allow it to gradually take over Lietuvos Avialinijos (Lithuanian Airlines) by 2009. The DowJones news service reported this week that the Swedish airline's majority owner, Iceland's Fons Eignarhaldsfelag, has reached an agreement with LAL under which the Lithuanian carrier will launch a directed share issue to FlyMe Europe. After the share issue, FlyMe Europe will hold 33 percent of the stock capital and votes in the air carrier.

Gediminas Ziemelis, a member of LAL's management board, declined to comment on this report on Feb. 13, saying that more information would be provided later.

According to reports, FlyMe Europe will have the right to appoint the chief executive officer, chairperson of the board and the majority of board members in LAL. It will be entitled to gradually increase its holding in the Lithuanian airline to reach 100 percent by Feb. 25, 2009.

LAL is currently 100 percent owned by LAL Investiciju Valdymas, a company controlled by Fima, an information technology firm, and its partners. The airline was privatized last year but has run into a number of problems, most notably debt arrears accrued when the government was the sole owner. For instance, Vilnius International Airport is owed some 3.5 million euros by the carrier, and threatened to litigate last year. After a series of negotiations the two sides struck a deal according to which LAL will pay back the debt over several years.

The company had said it would go bankrupt unless a deal was struck.

The carrier also continues to operate in the red. It reported preliminary losses of 8 million litas (2.3 million euros) for 2005, which is lower than the losses accrued in 2004. The company said it managed to significantly reduce losses in the last quarter of 2005 after posting losses of 24 million litas for the first nine months of the year.

In the meantime, LAL has been losing ground to rival carriers that have entered the market, including Latvia's airBaltic and Ireland's Ryanair.

An acquisition by FlyMe could provide positive synergistic effects for LAL. The company began operations in March 2004 and, from its base in Stockholm, now has 12 routes to European cities and resort areas.

FlyMe's fleet consists of four Boeing 737-300s leased from Awas International.