Lithuanian Airlines announces restructuring and cutbacks

VILNIUS - Lietuvos Avialinijos (Lithuanian Airlines), which is in the early phases of privatization, is cutting back on its flights and work force in an effort to become more efficient and streamlined.

While changes to the flight schedule are a direct consequence of the Sept. 11 terror attacks in the United States, other changes are a result of restructuring that the company planned prior to the tragic events in the United States.

Company spokeswoman Indre Paliuliene said, "Lithuanian Airlines will cut afternoon flights to and from Amsterdam as of Jan. 14, 2002."

Amsterdam's Schipol Airport is a major hub for many trans-Atlantic passengers and this will mean that instead of 10 flights per week to Amsterdam there will be only seven.

After Sept. 11 the airline industry has seen a major slowdown in air travel, especially by business passengers, who make up a large portion of Lietuvos Avialinijos' passengers. According to Vidas Zvinis, director of strategy at the company, "before the Sept. 11 events, we had seen passenger numbers increase 10 percent in the first nine months of the year. Now we predict a 7 percent decrease for the last three months of the year compared with last year."

But not all the changes are due to the attacks on the United States and the global slowdown in air travel. Long before September the airline had been undergoing restructuring in preparation for privatization and had been receiving advice and seeking investors.

According to Liutauras Radzevicius, a lawyer for the State Property Fund, which handles privatization, a German consortium was confirmed on Oct. 21 as winner of a tender to find a consultancy to handle the process. Indacon Consulting will work on the project alongside PricewaterhouseCoopers, the Lithuanian government's privatization advisers.

The State Property Fund believes the Sept. 11 attacks have not had a major impact in Lithuania. "The biggest impact of the terror attacks was on large airline companies, but we do see an increase in fuel prices, insurance costs and ticket prices," said Radzevicius. He also believes that additional spending may be seen in the area of air security.

The major effect of the restructuring of the company will be on its work force - currently 1,000-strong. Initial plans were for a 10 percent layoff, but Zvinis said eventually it would be in the area of 18 percent to 20 percent.

"There are too many employees for effective management," said Radzevicius. "Under normal management it would have only 700 employees." A meeting of the airline's board scheduled for Oct. 26 was due to decide on the precise nature of the layoffs but was postponed for unspecified reasons.

Lietuvos Avialinijos is in the process of selling two of its Soviet made aircraft. It has already signed contracts to sell the planes and has received a deposit for one of them. Radzevicius believes that the difference between the sale price and the amount the airline had so far actually received for the two planes is one of the major reasons for the 8.3 million litas ($2.07 million) loss it incurred in the first six months of this year.

The airline's representatives have already met with such large airline companies as Lufthansa, KLM, and Scandinavian Airlines, which have all shown interest in the privatization. But as Radzevicius points out, these airlines are themselves in the process of restructuring after the events of Sept. 11 and there may be difficulties in finding a willing investor in the very near future.