Single European Sky crawls back into the spotlight but it will not be in time for LOT

Victoria
By Victoria June 12, 2013 13:20

Single European Sky crawls back into the spotlight but it will not be in time for LOT

 

The European Commission (EC) has finally started to act on the Single European Sky issue (SES) after years of trying to let individual states manage the gradual integration, which has proved fruitless in the extreme.

The EC proposals include an independent Performance Review Body, the unbundling of support services, greater independence and competence for Civil Aviation Authorities, and the need for more consultation by Air Navigation Service Providers on capital expenditure. All steps in the right direction but hardly getting tough by any stretch.

As governments across the EU and the EC criticises the aviation sector for its emissions and taxes the hell out of the same, maybe it is time the EC put to work some of those taxes and got the SES moving. The fact is that SES would create a bonanza for investment in quality European airlines that have heavy intra-continent routes as they would save a huge amount on fuel costs. This would of course benefit the low-cost carriers most – investors must keep one eye on the progress of SES. As the SES program begins to get to a point of becoming reality, which might take some time yet, then it is time to invest.

But will benefits like the SES come in time for the likes of LOT?

 

LOT remains on the table with the recent Polish government vote allowing for a majority stake to be sold in the flag carrier starting to attract interest from other airlines. As reported here many months ago, Rothschild remains in place as LOT’s privatisation adviser and progress is being made. All credit to the Polish government for taking the required and advised action. But if you delve into the figures at LOT it is immediately clear that the airline will require another injection of funds before too long on top of the government “loan” that was approved by the EU the other month. Because of this fact any business looking to invest would be wise to wait it out for another “loan” before moving for the airline or indeed at the very least making such a cash injection a pre-condition of sale. But the flip-side to this is that if LOT were let to collapse then the remnants would indeed be most attractive for investment with everything in place to re-hire staff and re-structure the business on a low cost platform and lease new aircraft from there in the short term.

 

Taking this point of view it is clear that the Polish government, like the Italians before, has in many ways made a miss-calculation in propping-up its flag carrier.  There is no escaping the fact that LOT competes with the mighty low costs on 88% of its total capacity and its 737 fleet needs to be replaced. You could argue that LOT has 787s operating on routes that have little competition, which is where the value lies, but it is hard to see any airline other than Aeroflot seeing synergies to work with there, and its Eastern European ambitions are well documented. Could it be that Poland has sleepwalked into allowing Aeroflot to control its skies once again? This could be a political hot potato for the Polish government in the coming months and for that reason the government will be working hard with other airlines to get a deal done fast.

Victoria
By Victoria June 12, 2013 13:20
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