The case

Hungary's state-owned airline Malév has announced on last Friday that as of 6.A.M. its fights will not take off after 66 years of almost uninterrupted operation. A passenger told state-run newswire MTI that until 7 A.M. they were informed that Malév's flights are delayed and were informed only than that all flights have been cancelled.

In a statement published on malev.com the company said that ticket holders would be informed by customer services about alternate travel arrangements and compensation.

Individuals impacted by the shutdown can call the following phone numbers: 06-40-21-21-21 from within Hungary, and +36-802-11-11 from outside the country.

On last Tuesday the government issued a decree providing assistance to any passengers who purchased tickets for flights scheduled no more than three days after a shutdown in operations, as well as those who have traveled abroad with the airline and who are scheduled to return before the end of February.

"Unfortunately, what we feared the most and did everything to everything to avoid has come to pass," the company said in a statement. "Although there was still hope until the past few days that the operation could continue and passenger still fully trusted us, news reports in the recent few days has caused our service partners to lose trust and overnight began to demand advance payments for their services. This has accelerated our cash outflow to such an extent that the airlines condition has become untenable. It is also known that the owner, despite its best efforts, cannot continue to provide financial resources for our operation after the EU's negative decision. In light of all the above, the Board has decided to end the operation of the Hungarian national airlines. We apologize to all our passengers."

Malév, which accounts for 40 percent of annual turnover at Budapest's international airport, has a leased fleet of 22 passenger aircraft.

After failed privatisation attempts, Hungary in 2010 bought back all but a 5 percent stake in the carrier, which employs around 2,600 people.

The government held a series of talks with Chinese carrier Hainan Airlines last year on a cooperation deal, but they came to nothing.

In a Jan. 9 ruling, the EU Commission listed various forms of state financing for Malév between 2007 and 2010 that it said it would not have been able to obtain from the market on the terms granted by the Hungarian authorities.

EU competition regulators opened an in-depth investigation into Malév in December 2010.

The airline posted a loss of HUF 24.6 billion (USD 110 million) in 2010, but early this month forecast a significant improvement in operating results this year on the back of higher revenue and by filling more seats on its planes.

The government's reaction

Prime Minister Viktor Orbán told public radio Kossuth on Friday morning that two Malév aircraft are stranded abroad, one in Tel-Aviv and another in Ireland. He said the re-launch of the carrier is not impossible. "If we can rid of the burdens of the past we inherited like skeletons then there could still be a Hungarian national airline," Orbán blamed again on previous governments for the failure. He emphasized that there would be a need for a national carrier, but due to the crisis in Europe investors are not queuing up on the European air market. "But if there was an investor who would be willing to risk also its own money and try to operate a national airline profitably or at least not making losses then there will be such a new company," he added. The PM said "lightning struck" when the EU ruled that the state can provide no more funding for Malév.

The government has earmarked HUF 2 billion for the assistance and indemnification of Malév passengers who are affected by the stoppage.

A new national airline could be established on the ashes of Malév, said Antal Rogán, head of Parliament’s economic committee in an interview with commercial television ATV on Monday. The new carrier could start with a clean slate and could be successful with the current management, weekly 168 Óra reports.

The competitors' reaction

At a press conference in Budapest on Friday afternoon, Ryanair said it would operate 31 new routes, "saving 2,000 jobs following Malev's closure".

The company said it would base four new Boeing 737-800 aircraft at Budapest Airport from February 17, offering fares from EUR 9.99 / HUF 2,999.

Ryanair is the second low-cost airline to swoop on Malev's market within hours of its announced grounding. Wizz Air, a Hungarian carrier, offered to fly stranded Malev ticket holders for Ft9,900.

Wizz Air plans a substantial 66% capacity boost in Hungary in 2012 as a response to the collapse of the country's flag carrier Malév. As a new destination it will add Bucharest, but the low-cost/low-fare airline is interested in launching flights to and from Moscow, Istanbul, Kiev and Tel-Aviv too, said CEO József Váradi at a press conference on Friday.

The reaction of the opposition

The Orbán government has bankrupted the national airline – a statement issued by the Democratic Coalition says. The battle faught against common sense by Fidesz has boundled out the foreign investors, the markets are watching stunned the Orbán-Matolcsy-Felegi trio's economic policy leading to the failure. Before Fidesz starts to blame it on the social liberal 8 years period of governing, we would like to emphasize: the airplanes of Malév took off and landed between 2002-2010, so during the pemiership of Ferenc Gyurcsány. Even with difficulties, the airline was operating. Instead of changing the name of the airport, saving the company would have been a better way to spend the public money. Then the tickets bought by the passangers wouldn't have been lost, several airplanes wouldn't have been stocked abroad. This is what the politics of Fidesz is worth: the national airline in bankruptcy and Orbán is 100% responsible for that. It was a typical piece of communication from Fidesz when on Thursday the management of Malév beguiled the public opinion with promises like everything will be alright and the day after everything has stopped. The Democratic Coalition urges the investigation to find who are those responsible for the bankruptcy of Malév, for the statements and decisions which lead to serious financial and moral dammage these past weeks.

Commentators' reaction

In local daily Népszabadság, a left-wing analyst blames the government for splashing out on huge state-owned enterprises while the country faces grave financial problems. "We have a rather clear picture of what the costs are, but no idea about the return" –writes veteran columnist Endre Aczél in Népszabadság, in a comment on the government's intention to set up a new national airline to replace bankrupt Malév. The article appeared a few hours before Malév cancelled all its flights, declared bankruptcy and announced massive layoffs, and before Prime Minister Viktor Orbán told national public radio that a new national air company could come into being if enough private investors can be found to keep it afloat. Aczél points out that the government bought a significant quantity of Mol shares which is effectively "dead capital", as Mol is famous for not paying dividends. In addition, the share value has substantially dropped since the purchase. Another newly acquired asset is the Raba automotive company, which, Aczél believes, will not by itself be able to resuscitate Hungary's automotive industry, without hundreds of billions worth of investments, which are utterly out of the reach of the government. The same goes for the new state-owned telecommunication enterprise, which has won a tender to set up Hungary's fourth nationwide mobile phone network. Aczél just does not see where the government could find the enormous amount of money required. On top of it all, profitability is tough in today's saturated mobile phone market. The columnist reminds the government of its earlier promise to prop up small and medium size enterprises, which would be Hungary's only chance of promoting growth, but which has been abandoned for the sake of giant public companies. Aczél suspects that these enterprises will be used to find jobs for the scores of Fidesz people who lose their jobs as a result of the reform of the regional and local administration.

Orbán has written off Malév and with it also the employees of the Hungarian airline company, writes Tamás Bihari in Népszava. The left-wing columnist wonders whether the bankruptcy is the result of the ineptitude of the right-wing government, or if it follows a shrewd and secret blueprint worked out by Orbán. Although the Orbán government has itself allotted billions of Forints to the airline company, it will without doubt blame the default of Malév on the previous Socialist governments, Bihari predicts. As regards the future implications of the Malév case, Bihari wonders what the government's hidden agenda was, when it let the company go bankrupt. "Whose interests are served by such a swift insolvency? Could it be possible that an investment group closely associated with Fidesz is planning to restart Malév, once the company's debts have been written off?" Bihari speculates.

In Népszabadság, Anna Szalai ponders whether Malév will be followed down the drain by further state-run companies. BKV, the Budapest Transport Limited Company which runs all public transport in the capital city has also been teetering on the brink of bankruptcy for months, and despite the efforts by Budapest mayor István Tarlós (who won his seat in 2010 as a Fidesz-backed independent candidate), there seems to be no obvious way to avoid the complete breakdown of the service, Szalai believes. The left-wing commentator suggests that the government seems to believe that state-owned companies should solve their problems themselves, or face the consequences, as MALÉV did. She contends that such an approach would of course be criticized by Fidesz as a highly irresponsible act, were the Socialists in power. After the Malév affair, one may wonder what the future implications are, Szalai wonders. She believes the message is that "tomorrow anything may happen". Szalai fears that the government's approach will create uncertainty, which will increase public discontent and anger.

The fate of Malév is indeed a bad omen for other indebted state-run companies, Gyula Jámbor contends in right-wing Magyar Nemzet. The bankruptcy of the Hungarian Airline foreshadows what BKV, the Volán Coach Company and MÁV (the Hungarian Railway Company) may also have to face at some point. As for the causes of Malév's default, Jámbor lists the controversial messages sent by the current government on its intentions. But he also adds that Malév was grounded primarily because the previous, Socialist governments kept financing the deficit of this uncompetitive state-run firm. Jámbor also hints that by subsidising Malév, the Socialist government helped some of their "comrades" into well-paid positions, and also kept payments to subcontractors closely associated with the party alive. All this made the Hungarian airline insolvent, but the Socialist kept subsidising and filling the holes as long as it was possible.All this, however, does not imply that there is no need for a state run carrier, Jámbor adds. One can only hope that a new national airline company will be set up, and that it will succeed in boosting tourism, he concludes.

Both the government and the opposition are trying to make the most political capital out of the Malév case by offering interpretations which highlight the ineptitude of their opponents, Ferenc Kumin comments. While the opposition parties blame the bankruptcy on the government, Fidesz holds the Socialists responsible for the accumulated debt of Malév. The right-wing commentator believes that it is too early to judge which of the narratives will win and convince the public. As for the international repercussions, it would be very unfortunate if the Western media used the opportunity to criticize the Hungarian government by connecting the bankruptcy of Malév to the debates around the new Fundamental Law and the other disputed policies of the Orbán government, Kumin concludes.

Life after Malév

Budapest Airport has reported on Monday that following the events of 3 February, when the entire fleet of Hungary's flag carrier Malév was grounded, a "gentle calm" has returned in the last 48 hours. A large part of the lost traffic is already being picked up, the operator of the Budapest Ferenc Liszt International Airport said in a statement. Malév threw in the towel after 66 years of operation, but the void it has left behind is being filled by its competitors quickly. While the process is probably not yet over, it seems that mostly central European destinations will disappear from Budapest's route map. But several new ones will be added instead, especially thanks to no-frills airline Ryanair that seems to be in a conquer mode.

Source: Portfolio.hu; caboodle.hu; Reuters.com; Budapost

Last Updated on Monday, 06 February 2012 12:42