Poland’s LOT Says Loss Lower Even as EU Queries 787-Based Revamp

Jan 31, 2014 1:19 pm ET

Jan. 31 (Bloomberg) -- LOT Polish Airlines SA said a cost- cutting drive is successfully paring losses and stressed the benefits of rebuilding its fleet around Boeing Co.’s 787, even as the European Commission cast doubt on the strategy.

LOT ended 2013 with a “slight loss” of 20 million zloty ($6.3 million) or less and is on course to match or better a predicted profit of as much as 78 million zloty for the current year, the Warsaw-based carrier said today at a press briefing.

Poland’s biggest airline was responding to the publication this month of European Commission documents saying the recovery plan may fail to restore long-term viability and that the 787’s lower operating costs will boost only a small part of the network. LOT may also struggle to fill all eight jets ordered.

“Such results confirm that we were right about our assumptions and increase the credibility of our plan,” LOT Chief Executive Officer Sebastian Mikosz said in a statement. “We should bear in mind that the document published by the commission includes only the plan filed in June and doesn’t refer to all the progress in its implementation since then.”

LOT had previously forecast a loss for 2013 of 146 million zloty, though the carrier has since secured compensation terms with Boeing for the grounding of the global Dreamliner fleet following battery fires, together with further operational issues. The company didn’t specify what contribution, if any, the deal made to the earnings figure, though it stated Dec. 11 that the bulk of the gains would come this fiscal year.

‘Doubtful’

The European Union regulator’s publication of its decision to initiate scrutiny of an 804 million-zloty aid application from LOT makes public the body’s emerging views after it said Nov. 6 that a probe would go ahead.

“The assumption that LOT’s long-standing structural problems will be largely solved by the introduction of a new aircraft appears doubtful,” the commission said. “It will have a direct impact on only one of the market segments,. Secondly, it is far from certain that there will be sufficient demand in the future to ensure efficient utilization.”

Long-haul flights contributed less than 25 percent of LOT’s revenue from scheduled flights in 2012, it said.

The regulator added that LOT has made several restructuring efforts in the past, including a number of measures in the three years from 2009 after which it still posted a record net loss. Claims that the current plan will deliver a permanent turnaround are therefore viewed with “skepticism,” it said.

LOT may not remain liquid even if aid is granted, could struggle to make paid-for cabin services stick and has assumed unrealistic earnings forecasts and deviations from projections, the Commission said. It’s also concerned that airport-charge deferrals could constitute aid, as suggested by Ryanair Holdings Plc, and requested minutes from relevant meetings.

The regulator also questions whether LOT’s plan to close 19 routes and cut frequencies is sufficient compensation, and whether its share of restructuring costs amounts to the required 50 percent. Third parties have a month to comment.

--With assistance from Gaspard Sebag in Brussels. Editors: Benedikt Kammel, Peter Chapman