Банкеръ Weekly

Briefs

BUYER OF BULGARIA AIR WON'T HAVE A MONOPOLY ON ITS DESTINATIONS

Mr. Milanov, will privatisation settle the problems of Bulgaria Air?
- All Bulgarian Governments have been regarding privatisation as a panacea for solving the problems of the economy and their main argument is that the State cannot cope with the management of these processes. However, it turned out that what had been gathered within more than 50 years in the Bulgarian civil aviation could be squandered for just 15 years of democratic ruling. The sale of the national air carrier is again on the agenda now and the situation is quite complicated again. On one hand, the Cabinet is not interested in managing our aviation, and on the other hand, the experts in the branch demand guarantees that the situation with the privatisation of Balkan Airlines won't be repeated. The official motives for the divestment this time are the EU integration, the opening of the market, and the requirements for competitiveness. The truth, however, is that nothing has been left to be drained from the air company and hereafter its management will be bringing negatives only. It's a fact that immediately after Bulgaria Air was set up a serious process for deviating its assets started. Moreover, it was effected in several directions: hiring aircraft, spare parts and services, fuel supplies, charter contracts, representative offices abroad, etc.
What real assets has the flag carrier at present?
- None, except for the 50% share of the national market, guaranteed by bilateral aviation agreements. This means about 350,000-500,000 passengers a year and a turnover of some EUR80-90MN. But that won't be guaranteed after the privatisation. The golden share which the State will keep gives it the opportunity to take part in making some decisions, but does not guarantee to the buyer the destinations to which the company now flies. Once Bulgaria Air is no more state-run, the other Bulgarian carriers will have all rights to claim flights to these destinations through competition and transparent criteria. In case the State concedes the lines (as was the case in the privatisation agreement for Balkan), the market participants whose interests are injured would hardly miss to approach the Commission for Protection of Competition (CPC). Such a monopoly won't be to the liking of Brussels.
Could we expect then that a serious investor will show interest towards Balkan Air?
- Foreign investors could be interested in the privatisation of Bulgaria Air for several reasons. The first and most unacceptable one for the country is the liquidation of the airline as a competitor. In fact, that was exactly the case with the divestment of Balkan. The then flag carrier's considerable assets, exceeding USD60MN, were of additional interest. Currently, Bulgaria Air owns almost none tangible assets, but it is a serious rival to the foreign companies on the domestic market. Therefore, they are among the potential participants in the contest. At the same time, the possibility that a big European company is the candidate-buyer is the least, mainly due to the lack of guarantees that after the sale the new owner will undertake the traffic which is presently serviced by Bulgaria Air. Firms from Russia, the USA, or Asia could be expected as well. They will be interested in developing the Bulgarian national air carrier in order to play on the European aviation market through it.
In the second place, the candidate could be an investor who will use the company as a laundry for some finances and liquidate it afterwards.
Another important matter is the solution of the problem regarding the requirement for a 51% Bulgarian participation in the buyer in order to appoint the new owner a carrier under bilateral agreements. This means that big foreign companies will be able to participate only through companies registered especially for the purpose and meeting the set conditions. The same holds true about financial investors as well. In fact there is one more problem. Who will be managing the national air carrier if a financial institution buys it? In such a situation it will have to enter into complex relations with a aviation company or a managerial team with a potential and capacity to cope with aviation processes.
Are there chances for a Bulgarian participant to win in the bidding?
- No Bulgarian company directly meets the set criteria for participation in the tender. That could be accomplished if a consortium is formed between a financial investor and a domestic airline.
Could you possibly make a forecast about the future buyer?
- In my opinion, a consortium between a non-European air company and a financial investor registered in Bulgaria, or vice versa, would be the most advantageous option for Bulgaria. For such a consortium the purchase of Bulgaria Air would be an ideal start for gaining positions on both the Bulgarian and the European aviation market. Practically, the big problems now and after the carrier's privatisation as well will be on the domestic market which is quite narrow and inert. It would hardly be able to develop without the active intervention on the part of the government. In the deal itself the Cabinet should satisfy two conditions, which seem contradictory at first sight: find a way to guarantee the transfer of Bulgaria Air's destinations to the future owner of the airline, and in the same time include in the process the other domestic carriers which operate mainly on the tourist market. That could be done only if the State keeps a stake in Bulgaria Air after its divestment. We are not speaking about the so-called golden share, but about a package of shares allowing it to support the aviation market in complicated moments. That is the usual practice in Central and Western Europe. There is almost no flag carrier there in which the State does not participate. Such an idea was launched back when Bulgaria Air was set up. The stance then was that its strengthening and development could be effected most quickly if 51% of its shares were sold to a foreign investor. Thus, no additional financial injections from the state budget would be needed, nor would there be chances for draining the newly-established firm.
The draft strategy for the privatisation of Bulgaria Air, however, reads that the package to be sold out is 99.99 per cent.
- That's right. But the strategy is yet to be discussed by several parliamentary commissions, and to be voted in the plenary hall afterwards. It would be good to move it for a wide public discussion meanwhile. The stance of experts in the branch should not only be heard, but taken into consideration for the conclusive draft of the document which will be voted by the National Assembly.

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