VILNIUS - Following reported yearly losses of around 100 million litas (29 million euros) and a failed offer to sell the company to the government for 1 litas, FlyLAL has announced that it will cancel flights to several destinations that aren't profitable to stabilize their business.
"We think that the aviation industry is not seen to be of strategic importance by the government following their denial to nationalize the company. So from now we will not support any routes that are not profitable for us. Already we are canceling the routes to Istanbul, Rome and Paris," Vytautas Kaikaris, CEO of FlyLAL told The Baltic Times.
Despite being the leading carrier at Vilnius airport and having record numbers of passengers, the airline, which was privatized in 2005, has posted massive losses. The company asked the government to bail it out in December last year for a symbolic price of 1 litas, similar to the example of Parex bank in Latvia.
Kaikaris said they had more passengers than ever before, but this did not prevent them from making a loss.
"Having lots of passengers doesn't necessarily mean lots of profit. We have not got the right sort of passengers. Last year we went for market share and got to 800,000 passengers 's we achieved our goal, but profits were cut for three reasons 's fuel prices, the price dumping of airBaltic and our own mistake of operating a fleet of planes that were simply too big for the Lithuanian market," he said.
The woes of the airline continued as Vilnius International Airport (VIA) threatened to stop serving FlyLAL passengers because it is owed about 20 million litas by the airline.
"If FlyLAL-Lithuanian Airlines continues to renege on its obligations, Vilnius Airport will be providing no services to this company starting Jan. 1, 2009," the airport said in December.
"Throughout the year 2008, VIA has been fulfilling its contractual obligations to FlyLAL-Lithuanian Airlines. However, [the airline] has not paid for the services rendered in August and subsequent months."
The two parties have since come to a short-term agreement to continue operating until the issues are resolved.
NATIONALIZATION
Transport Minister Eligijus Masiulis announced publicly late last year that FlyLAL was in serious danger of going bankrupt, but later refused to nationalize the carrier despite saying that "everybody is interested" in the survival of FlyLAL.
FlyLAL's owners offered to sell a 51 percent stake in FlyLAL to the government for 1 litas and asked for a state-guaranteed loan of 30 million to 35 million litas.
"The situation has become critical due to a shortage of funds," Gediminas Ziemelis, an indirect shareholder of FlyLAL, said as the offer was made.
The deal on nationalization by the company's shareholders was "disgraceful, to say the least," Masiulis claimed.
"All assets have been moved to other companies and they offer to the state a very strategically important company but together with such huge financial losses. It is disgraceful, to say the least," he said on LNK TV.
He would not say, however, that the bringing of the company to the brink of bankruptcy was intentional.
"We should have a look at the privatization that took place back in 2005 and what happened afterwards. The company was actually split into the whole group. Moreover, some new companies were established.
Considering the current situation, the FlyLAL company, which the government has been offered to buy, has no assets but it has financial losses amounting to almost 100 million litas. Meanwhile, some other companies within FlyLAL Group still work profitably and have quite a lot of property and aircraft," the minister said.
Kaikaris hit back at the statements saying that the new parts of the group were profitable because the shareholders had created them.
"The whole rumor that we have split the company and put all the debt in FlyLAL is an incomplete picture. All these other companies were built from zero with shareholder money and now they have become profitable."
"This view is short sighted 's it is normal to organize your business so you can focus on your profit centers so they can develop and get support from banks and so on," he added.
Some believe that the company is trying to dump its debt on the government.
"It is insane to say that this company was deliberately made bankrupt. If you wanted to do that then you would take all the money out and stop investing, but the shareholders have invested 45 million litas of their own money," Kaikaris said.
It is estimated that FlyLAL's bankruptcy would slice a billion litas off the country's gross domestic product annually and would cost the state around 30 million litas in lost tax revenue.
