Monday, January 30, 2012

Spanair Sign of Things to Come?

Spanair, Spain's fourth-largest airline, abruptly shut down operations on Friday, prompting threats of legal action from the Spanish government concerning the thousands of passengers whose flights were canceled without warning. See Raphael Minder & Nicola Clark, Spain Threatens Fine After Airline's Quick Close, N.Y. Times, Jan. 30, 2012 (available here). Spanair's story typifies numerous trends playing out in the EU aviation market that can be expected to continue throughout the coming year: decreased state investment, increased foreign investment, consolidation and contraction. Spanair's collapse was largely precipitated by the withdrawal of state funding and Qatar Airways' decision not to invest in the Spanish carrier. See Manuel Baigorri, Steve Rothwell & Alex Webb, Spainair Collapse Puts Europe's State-Owned Airlines on Alert for Investors, Bloomberg News, Jan. 30, 2012 (available here). The financial crisis and EU competition rules against state subsidies are combining to leave Europe's less profitable small-to-midsize carriers in financially perilous condition. Spanair's dashed hope for a lifeline from Qatar exemplifies the Gulf carriers' new role as one one of the few viable sources of investment for these carriers, evident last month in Etihad's purchase of a 29 percent stake in Air Berlin. Among Europe's three large carriers IAG has been the most open about exploring takeover opportunities. Such opportunities should be plentiful as SAS, TAP, LOT and Aer Lingus have all reportedly made shares available. Finally, airlines unable to find investors may share Spanair's fate. Hungarian carrier Malev appears likely to be the next airline to follow Spanair and suspend operations. Monday the Hungarian government designated Malev as a strategically important company, a legal move that will prevent creditors from filing bankruptcy proceedings. Malev reportedly has until the end of the week to produce a liquidity management plan. See Gergely Szakacs, Hungary's Malev Airline Runs Out of Cash, Reuters, Jan. 30, 2012 (available here).

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