Third try at privatizing Hungary's Malev Airlines

  • 2003-01-16
  • Eszter Szamado

Hungary's beleaguered Malev Airlines is preparing for privatization for the third time in a decade, this time trying to become profitable by stepping up efforts to join a global alliance and renewing its fleet.

"The new year could bring a significant change for the company," Malev chief executive Jozsef Varadi said.

After unsuccessful attempts at privatization which raised questions about the company's survival, Malev is again up for sale under a recent decision of the State Privatization Agency, which owns 96.8 percent of the company.

"2003 could determine the future of the company, which plans to join a global alliance in the first quarter of the year, launch privatization, renew the fleet and form a new company structure that can react to change," Varadi said.

The company, which describes itself as "a leading airline in Central-East Europe," is expecting a global boost of the air industry in the second half of the year. At the same time, it is pursuing a state-approved strategy of developing into a regional carrier through the gradual replacement of its entire fleet and turning Budapest Airport into a regional hub.

It has already launched a new operation called Malev Express, running regional jet services by 50-seat Bombardier CRJ200 ER planes, planned as a reply to the appearance of low-cost regional carriers.

But analysts have painted a somber picture.

"Malev is a small Eastern European regional carrier that is now pursuing a strategy built on heavy expansion. But it should in fact minimize its fleet and concentrate on joining a strong alliance," Ferenc Turi of Roland Berger, a consultancy firm, said.

"Inside a strong alliance which pours in passengers from the Far East and North America and offers effective marketing and sales activities, it could become a successful niche carrier, but it should not try and copy mega-carriers by offering leather seats and other extras," said Turi.

Varadi rejected such criticism. "The proof of the pudding is in the eating. Malev's regional strategy has been chosen carefully after looking at several models and is backed by serious professional arguments and calculation with regard to the trends of the industry," Varadi said.

With the aviation and aircraft industry in a tailspin triggered by the Sept. 11 attacks, "Malev received a unique opportunity to couple its ambition with a highly favorable economic factor: that it is able to replace its fleet to offer significantly more efficient and higher-level service at less expensive prices," he said.

The company is to replace 21 planes by 2005, including 15 leased Boeing 737 Classic aircraft, by leasing 18 more modern and efficient Boeing 737 Next Generation planes and buying 10 more Bombardiers to add to the two it already has, Varadi said.

Varadi said he was confident that Malev would continue improving after a low in 2001 which brought losses of 31.8 million euros.

"We are targeting humble profits of around 250 million forints (1 million euros) this year after closing 2002 with no more than the planned loss of 2.3 billion forints," Varadi said.

Malev was partially privatized in 1992, with 30 percent bought by Alitalia and 5 percent by the Italian Semisweet investment group, but it went back into Hungarian state ownership after the EU called on Alitalia to sell its foreign interests in 1997.

Another attempt at privatization was postponed in January 2001 after potential investors backed out of the deal citing "negative processes in the international aviation industry and the constant transformation of global alliances."