LOT Polish Airlines (LO, Warsaw Chopin) has been given the go-ahead to source PLN804million (USD268.1million) in funds from the Polish state following a European Commission (EC) investigation. In its ruling, the EC said a study of the airline's restructuring plan showed LOT could become a viable entity in the long run without unduly distorting competition in the Single Market.
"The investigation revealed that the restructuring plan, which aims at restoring LOT's viability by 2015, is based on realistic assumptions and should enable the company to return to long-term viability within a reasonable timeframe. LOT's actual financial results in 2013 were already better than expected and the company reported a net profit for the first time since 2007," the EC said in a statement. "The proposed capacity reduction, which includes a withdrawal from some profitable routes and return of several airport slots, will limit the distortions of competition brought about by the aid."
The EC added that LOT's decision to fund more than half of its restructuring costs via a finance lease obtained on market terms more than satisfied the Commission's minimum criteria.
Faced with stiff domestic and regional competition from the likes of Ryanair (FR, Dublin International), easyJet (London Luton), Lufthansa (LH, Frankfurt International), KLM Royal Dutch Airlines (KL, Amsterdam Schiphol), British Airways (BA, London Heathrow) and the Gulf carriers on long haul international routes, LOT has been in financial difficulties for several years, reporting significant losses and negative equity.
In June 2013, majority shareholder, the Polish government, informed the EC of its plan to extend the carrier EUR200million in capital to help LOT finance the restructuring. Thus far the plan has produced results with LOT improving its figures posting an operating loss for 2013 of just PLN4 million (USD1.03million); an improvement from a PLN138million loss the previous year. Overall, LOT expects to post a PLN70million profit this year.
