Clouds over Olympic Airlines

The government is expected to soon have to deal with the problem of the survival of Olympic Airlines, the newly established and revamped carrier which seems to be following the same course as its now debt-sunken predecessor Olympic Airways (OA). After two failed attempts at privatizing the old carrier, Olympic Airlines emerged last year as its debt-free arm. And while the accumulated debt of Olympic Airways for 2003 is reasonably expected to swell still further than the 2002 figure of 515 million euros (the main difficulty in reporting the figure is that the «skeleton» company was always averse to proper accounting), its revamped successor is now projected to post losses that may exceed 100 million euros, instead of an initially hoped-for profit. Meanwhile, OA is still under the threat of a possible European Commission ruling that will force it to return to the government more than 180 million euros it received as grants, on the grounds that this violated the rules of the deregulated air transport market. For its part, the government is trying to buy time and placate the Commission by launching a new privatization process for Olympic Airlines and parts of the old OA. Early next month, ministers are expected to pick a privatization consultant, which sources say will be investment bank Lazards. The three consultants in the attempt to privatize the revamped Olympic Airlines – which will again be declared a failure – Greek banks National, Alpha and Emporiki, are also expected to participate in the new endeavor. Due to heavy pressure by the Commission, sources say, there will be a quick international pre-marketing campaign, aiming at assessing the extent of potential interest for parts of OA and attracting a credible buyer for a majority stake in Olympic Airlines. However, any chances of success inevitably depend on the Commission’s stance, as no investor can be reasonably expected to assume the risk of having to return the 180-million-euro subsidy. The outlook is not considered at all positive and no one can rule out that creditors may deliver the coup de grace. EU Commission demands Meanwhile, the European Commisison in July demanded costly corrective measures. – It said that OA has to return to the government grants which it approved in 1998 but whose terms were not observed. It also said that OA received more illegal grants which it still has not returned by using delaying court action in Greece. – Most importantly, the Commission takes the view that the setting-up of Olympic Airlines is a legal ruse designed to prevent the return of subsidies to the State. This logic of continuity between OA and Olympic Airlines obliges the government to seek the return of grants from both. – The 130.3 million euros advanced by OA to set up Olympic Airlines is viewed as having the indisputable character of a grant and must be returned. It does not enhance the viability prospects of both and amounts to a violation of the «one time, last time» principle, given that OA benefited from state grants in 1994 and 1998 and less than 10 years have elapsed since the completion of the last restructuring plan. – An examination of OA’s financial situation in 2003 found that the significant losses of recent years progressively consumed the company’s equity capital and reduced its creditworthiness. As a result, in order to cover its short-term requirements, OA resorted to various tricks, mainly leading to a steep increase in its debts to the government and other public organizations. For instance, the company neither paid taxes due nor did it return 26 million euros received in the form of a special levy for construction of the new Athens airport. The Commission also found that the Greek government did not submit any real restructuring plan but simply transferred part of its activities to a subsidiary, which became the new carrier. None of the other problems of the company were addressed, making its viability doubtful. Finally, the Commission describes OA’s business plan as unsound and retains significant reservations regarding even its published balance sheets, where it has identified entries, such as extraordinary revenue items, that seem to have been invented.

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