LOT won't float on the stock market

LOT Polish Airlines is not slated for an initial public offering (IPO) by 2005, despite an earlier announcement that the national carrier would issue publish shares in the second half of 2003, Treasury Minister Wiesław Kaczmarek told the WBJ. The treasury compiled a list of state-owned companies set for IPOs that will be published Tuesday when the cabinet discusses it, Kaczmarek said. LOT may return to the list if it meets three basic preconditions for an IPO, he said. LOT's accession to the Lufthansa-led Star Alliance must be completed, the 25.1% stake in the carrier currently held by the bankrupt Swissair must find a buyer and the airline's restructuring process must be "successfully completed." The company will not be ready for public trading if these three conditions are not fulfilled by the end of 2003, Kaczmarek said. "A public offering wouldn't then be a reliable and fair offer for investors," he said. The airline is furthest along in meeting the first condition. It is in the process of becoming a fully fledged member of Star Alliance and will probably join the German-airline-led group some time in mid-2003. The sale of the bankrupt Swissair's stake is less certain. Other airlines are short of cash amid a global crisis in the industry, while other investors are wary of airline stocks. But the third condition is potentially the most formidable obstacle to LOT's IPO since the carrier's restructuring process is overshadowed by internal and external problems, industry sources said. "LOT still has an enormous debt from the past due to the costs of leasing and purchas(ing) (a new) fleet," said Elżbieta Marciszewska, an airline analyst at the Warsaw School of Economics. "This burden will drag on for several years, while we cannot expect any miracles on the market with an industry growth of 9-12% annually."

Poor finances LOT's management announced a restructuring plan last September to secure the carrier's survival in increasingly competitive European skies. The crisis that hit the airline industry after the Sept. 11 terrorist attacks in the United States was an additional blow to LOT's finances when consumers curtailed travel plans. The carrier posted a loss of zł. 639 million ($160 million) on zł. 2.42 million ($606 million) in revenue last year. The airline recorded another loss in the first quarter of this year, said Andrzej Kozłowski, LOT's spokesman, although it improved its passenger load factor by nine percentage points. LOT hopes to finish the year in the black, he said. The restructuring program includes closing some unprofitable routes, changing sales systems, stopping as many investment projects as possible and trimming a large part of the carrier's workforce, Kozłowski said. LOT has dismissed some 800 of its 4,600 employees since last September and more layoffs are planned, he said. But Kozłowski couldn't say when the restructuring would end due to the uncertainty surrounding the airline's operation. "There is no planned end to the restructuring process, particularly as our accession to the Star Alliance adds more tasks, including changes in our structure and IT systems," he said.

Tough decisions The airline must increase its cost efficiency and cut its workforce - actions that require tough decisions by the management, said Mirosław Tkaczuk, head of the IPO department at COK Banku Handlowego. But as long as the company remains in state hands, the restructuring is bound to progress at a slow pace, he said. "If there is a private owner that keeps demanding results from the management, then a company's performance improves," Tkaczuk said. Regardless, it will be a while before the market is ready for an airline IPO, he said. "Against the backdrop of Sept. 11, (LOT's public offer) may not have a good reception from investors," Tkaczuk said. The entire industry is experiencing problems and its rating is very low now, Marciszewska said. "Investors are wary of buying airline stocks nowadays, particularly in such carriers as LOT, whose competitive position in the market is weak due to its small size," she said.