SAS poised to acquire Lithuanian Airlines

Scandinavian Air Systems was named the lone qualifying candidate in the open competition to purchase a 66 percent stake in Lithuanian Airlines, the state-owned carrier, after the preliminary application phase ended Feb. 6.

The public tender for Lithuanian Airlines' privatization began on Jan. 6, when the State Property Fund distributed information to potential buyers and began soliciting applications.

Finnair was the only other applicant in the process, according to fund officials.

With SAS singled out as the lone investor capable of participating in the upcoming public tender, the Scandinavian carrier will have to decide whether to make an offer by April 25.

If SAS does decide to pursue a stake in Lithuanian Airlines, it will be required to make a final bid by June 27.

Liutaras Radzevicius, head of the privatization transactions division at the State Property Fund, said that he was satisfied with the results in spite of the fact that SAS will have no competitors in the bidding.

"We have had many other examples of successful privatization projects in Lithuania with only one qualifying bidder," said Radzevicius.

Nevertheless, although it has reached the bidding phase of the process, SAS officials were emphatic that they are under no obligation to make an offer.

"I must emphasize that it is still too early to say whether or not we will make a bid on Lithuanian Airlines," said Ulf Thorne, manager of media and public relations for SAS.

"We're still in a stage where we need to analyze the data we have collected so far," he said.

SAS currently owns 47.2 percent of AirBaltic, Latvia's national carrier.

The small number of qualifying strategic investors for Lithuanian Airlines is due in part to the narrow criteria set out by the State Property Fund.

According to the fund's guidelines, any potential investor must be an airline serving at least 1 million or more passengers a year and have its home base in a country that is a member of the Joint Aviation Authorities or the Federal Aviation Authority.

Also, any investor must also be a member of an international airline alliance, such as STAR Alliance or SKY TEAM.

Analysts doubted whether the fund's approach was in the state's and airline's best interests.

Remigius Simasius, senior policy analyst with the Lithuanian Free Market Institute, stated that the State Property Fund would be better served by a bidding process that would attract a wider range of candidates.

"The strict criteria for bidders simply doesn't allow for a large number of competitors," said Simasius.

"It's possible that the State Property Fund will end up with the type of investor it wants, but it is making the entire process more difficult for itself by setting up a system that attracts only one candidate," he said.

Simasius further criticized the fee of 40,000 litas (11,600 euros) the State Property Fund charged all potential candidates to obtain the initial public tender package.

The process is designed to exclusively attract a strategic investor.

The tender winner will acquire 34 percent of the company's shares upon the conclusion of the sale-purchase agreement, which is scheduled for this summer.

Two years later the investor will be obliged to acquire the entire new issue of 904,068 shares, giving the investor a two-thirds stake in the company. After this second share purchase, the purchaser will have invested some 12.3 million litas in the airline.

Lithuanian Airlines is currently 100 percent state-owned. In June 1995, it was registered as a special purpose company with the Lithuanian government, and in August 2000, all of its shares were transferred to the State Property Fund.

The Lithuanian national carrier has a fleet of seven aircraft, with four Boeing 737s and three smaller Saab 2000 models. The airline currently serves 13 destinations in 12 countries and carried 304,300 passengers in 2002, down 2.9 percent from the previous year.

While official figures are not yet available, Lithuanian Airlines forecast a profit of approximately 20 million litas for 2002.