A gift for the next Olympic Airways owner

With the State – namely, taxpayers – taking over the debts of national flag carrier Olympic Airways while handing over the company’s assets to the new owners, the latter could receive an official injection exceeding 350 billion drachmas. This is the present status of the privatization efforts for Olympic Airways, nine months after the government publicized an international tender for the declaration of interest in the state carrier and more than two months after it entered into talks with leading bidder Axon Airlines for the latter’s takeover of Olympic Airways. Everything appears to show that a political decision has been made which favors Axon Airlines taking control of Olympic Airways. Barring other political or economic factors, it could be difficult overturning this decision. Thus there is no point in discussing how the State intends to deal with the short-term transfer of the national air carrier to the new owners or what kind of procedure will be suggested by privatization adviser Credit Suisse First Boston tomorrow. What nobody has dared to bring up is the cost of selling Olympic Airways and the State’s obligations. The transfer of the state carrier’s assets to the Liakounakos Group cannot be in any way be characterized as the privatization of the company. The national airline is not being sold, nor is it being bought as the State takes over its debts and only makes over 51 percent of the New Olympic to the new owner. The term privatization therefore is only used in the conventional sense. Olympic’s debts are estimated at between 50 to 80 billion drachmas and will be taken over by the State. Submitting its revised offer, Axon Airlines said it does not need 2,500 employees at Olympic Airways. It wants termination agreements to be sent to the entire workforce, and only 4,533-5,000 are to be rehired with new contracts which would be drafted in line with its own employee agreements. Compensation costs resulting from job cuts, some employees being transferred to the public sector and the creation of a voluntary redundancy program for about 2,000 staff are estimated at 70 billion drachmas. This will naturally weigh on the State. One factor that needs to be taken into consideration is the fact that the State will be obliged to contribute to the New Olympic Airways in a number of ways. Firstly, it will need to cede to the new company facilities set aside for the airline and its subsidiaries at the Eleftherios Venizelos Airport at Spata, all of which were paid by the State to the tune of 70 billion drachmas. Secondly, the New Olympic Airlines will take ownership of a fleet of six B737-400 airplanes purchased in 1992. Together with their spare parts, the planes are worth $120 million. Axon Airlines has suggested that the fleet will be sold after the summer of 2003. The third point relates to the four Airbus A340s acquired by Olympic Airways in 1999 with a $200-million state guarantee. Bidder Axon Airlines has also proposed to sell the planes by the end of the summer in 2003. This would mean the company breaches its contract with construction companies and those organizations which put up the guarantee. While 51 percent of Olympic Airlines will be sold off, the State will be required to take on the remaining 49 percent, valued at 37.5 billion drachmas. It will also be called on to pay its share whenever the majority shareholder decides on some kind of investment or other. The new owner will also benefit from Olympic Airways’s slots at foreign airports, its reputation and clientele as well as its stakes in other companies. For example, the airline’s 2-percent share in Galileo International which was recently taken over by Sedant, is worth some 1.2 billion drachmas. Axon has also requested favorable tax treatment for New Olympic such as a three-year tax exemption period and a 10-percent commission for the sale and purchase of aircraft. With plane manufacturer Boeing a member of the Axon consortium, the privately-owned airline is expected to benefit twice from this concession. Thus Axon Airlines, a small company with losses exceeding 8 billion drachmas in the first two years of its operation, has succeeded in ending up as the preferred bidder for the state carrier. If the company succeeds in its takeover bid, it could end up a scandalous move which will cost the State billions of drachmas.

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