Selling the National Carrier

Economic News

22 Jul 2010
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The long-stalled privatisation of Bulgaria's national carrier finally seems set to begin, with the calling for tenders for the sell off of Bulgaria Air on June 7, and a final decision due before the end of the year.



Bulgaria's previous conservative government had hoped to sell the airline in 2004, but had not succeeded in finalising the legislation to do so by the time it was voted out of office in 2005. However, the present government managed to achieve parliamentary approval of the sale in February



Up for grabs will be a 99.99% stake in the airline, with the Bulgarian government retaining a golden share in the flag-carrier to ensure it has input into key management decisions.



Under the terms of the tender, strategic investors based within the boundaries of the EU need to prove revenues from aviation services of at least $189.74m for each of the past two fiscal years and to certify passenger traffic of at least 750,000 annually for each of the past two years.



Eligible financial investors should be legal entities, 51%-owned by Bulgarian or EU corporations or individuals and are required to manage assets of $316.24m or control equity in other commercial corporations worth over $189.74m. The winner of the tender will be barred from disposing of any equity for five years after the sale. The buyer will also have to lift Bulgaria Air's capital by Lv20m ($12.93m).



The government will be looking for a good price for the national carrier, as it needs to bolster its flagging privatisation programme and bring in much needed capital, with recently released Finance Ministry figures showing a sharp downturn in revenues from sales of state assets.



Among those considering putting in a bid for Bulgaria Air is Russian businessman Alexander Lebedev, with an offer tipped to come from Ilyushin Finance, a subsidiary of his National Reserve Corporation (NRC), which has a 30% stake in the Russian airline Aeroflot.



According to Todor Nikolov, the head of Bulgaria's Privatisation Agency, along with Ilyushin Finance, the Bulgarian private carrier Hemus Air, the US firm York Management in partnership with Olympic Investors and Austrian Airlines have all shown interest in the sale of Bulgaria Air. This was confirmed on June 9 by Veneta Natcheva, spokeswoman for the agency.



"The companies have expressed official interest in the tender but have not yet presented their offers or bought documents to take part," Natcheva told a press briefing.



Local firm Hemus Air is keen to keep the national carrier in Bulgarian hands, said the airline's executive director Dimitar Pavlov, after the terms of the sale were announced.



"We were the airline that helped the state in the establishing of Bulgaria Air and now we are officially declaring our interest in its privatisation," he said, adding that the combining of the two airlines would consolidate the country's aviation industry.



However, Dimitar said a successful bid for Bulgaria Air would require Hemus to take on either a strategic or financial partner as it did not meet the $189.74m revenue requirement set out in the tender specifications.



The privatisation of Bulgaria Air comes just as the government in Sofia signed the European Common Aviation Area (ECAA) pact, opening up the country's skies to greater competition. Under the agreement, finalised June 9, foreign airlines will be able to fly freely within the EU and other regions covered by the pact, removing the previous restrictions laid out by bilateral agreements. Other countries that joined the ECAA along with Bulgaria included Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Macedonia, Romania, Serbia, and Montenegro. The deal is an added incentive for potential buyers of the national carrier as Bulgarian airlines will gain unrestricted access to all airports covered by the pact.



Bulgaria Air, the successor to Balkan Air, is not a major player in the international carrier trade, operating eight leased aircrafts and flying to 16 countries. Though turning a profit of Lv500,000 ($323 300.25) last year, high fuel costs and a falling share of the market has seen the airline lose roughly Lv13m ($8.41m) in the first four months of the year, according to reports in the media.



Instead, it is the routes and the company name that hold major appeal, along with the potential that Bulgaria holds as both a holiday destination and a candidate for EU membership and the economic resurgence that the accession process should generate. Most experts see a bid for Bulgaria Air as a bet on the country's future.

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