No new LOT investors as Swissair bails out

Financially troubled Swissair announced last week it wants to sell its stake in LOT Polish Airlines (LOT) but the most likely new investors, Sweden's Lufthansa and British Airways (BA), said they have neither the money nor the will to buy the shares. Lufthansa and BA have said they want to include LOT in their global alliances (Star Alliance and Oneworld, respectively) and industry officials consider them the most likely replacements for Switzerland-based Swissair. But both airlines last week said they weren't interested in going as far as buying Swissair's stake. "Currently, it's not our priority to invest," said Bernd Wietfeld, BA's spokesman for Eastern Europe. "We are reshaping our own business to get British Airways on track." Both Lufthansa and BA bid for a minority stake in 1999, when Poland's government was privatizing its national carrier, but Swissair finally won the tender and took 37.6% of the company's shares. But today, when the stake is once again available, the carriers are struggling against a deep crisis in the airline industry due to a slump in air travel following the Sept. 11 terrorist attacks and cannot afford acquisitions, the airlines' representatives said. "No airline has the money to buy other airlines at the moment," said Christopher Zimmer, Lufthansa's manager for Poland. Besides, Lufthansa has been building its Star Alliance without capital involvement in smaller carriers, he noted. "It's not our philosophy to make financial investments," he said. BA also avoids acquisitions, according to Matthew Stainer, an airline analyst at Société General in London. "BA has tried not to buy stakes in smaller carriers," Stainer said. "You don't need to commit capital if you just want to include an airline in your alliance." The stake in LOT, now down to 25.1% since the government bought back some shares, lost much of its attraction to potential buyers after the Polish carrier last week announced zł. 639 million ($156 million) loss in 2001, while its revenue fell by 0.4% to zł. 2.42 billion ($591 million) from zł. 2.43 billion ($593.7 million) in 2000. The company said the slump in the global air travel, high fuel prices, złoty appreciation and substantial spending on the development of a hub in Warsaw last year were key reasons for the loss. While Swissair's bailing out has long been expected, no potential investor has so far declared interest in the LOT stake. Industry watchers said LOT can only benefit from a delay in the sale of the stake by Swissair. "Haste can be a bad adviser here," said Janusz Lewandowski, former privatization minister and an MP for the Civic Platform (PO). "It's better to wait and see how the biggest consolidation centers, such as British Airways and others, survive the current crisis. Otherwise, rotting processes may come to light quite soon after the signing of the (sale) contract." Elżbieta Marciszewska, an airline analyst at the Warsaw School of Economics, agreed. "Under the current abnormal circumstances (in the airline industry), it's difficult to build a strategy," she said. "And the sale of shares is a strategic decision, so it's better to wait now." Before Swissair sells the stake, the Swiss carrier must get approval from Poland's Treasury Ministry, which still holds a nearly 68% stake in LOT. The airline's workers hold the remaining 6.9% of shares.