Croatia Airlines and Strategic Partners, What's Really Going On?

By 8 January 2019

As Josip Bohutinski/VL/Poslovni Dnevnik writes on the 8th of January, 2019, the Croatian Government is set to propose an increase in the amount of PSO contracts Croatia Airlines receives for domestic flights to the European Commission (EC). Croatia's national airline Croatia Airlines (CA) should select a financial advisor to develop a recapitalisation model and find a strategic partner by the end of this month.

The two-time bidding was announced last September, and as has since come to be known, reputable world companies such as Deloitte, AT Kearney, PwC, the Boston Consulting Group and DBV, which are part of a consortium with Croatia's PBZ, have come to be involved.

From Croatia Airlines themselves, they stated that last year, the Croatian Government put the company back on the list of companies of strategic and special interest of the Republic of Croatia, and that in the national reform program, it was stated that the goal in respect to Croatia Airlines is to ensure the further development and strengthening of competitive advantages and positions in the air transport market through quality strategic partnership. That strategic partner, which is obviously yet to be found, should expand Croatia Airlines' transport network and increase market share, as well as successfully recapitalise the air company.

Just how much money is actually needed?

When asked about this, Croatia Airlines responds the bid is still in process and therefore the company isn't in a position to comment on its details at the moment. The selected advisor should assess the amount of money really needed for the recapitalisation of the airline. Croatia Airlines' provisional director, Jasmin Bajić, has already estimated that it stands at about 250 million kuna.

In the past year, the Polish national airline LOT and the 4K German investment fund, which has already taken over Slovenia's Adria Airways, have both been interested in entering Croatia Airlines. As is already known, some Chinese air carriers have recently shown a somewhat general interest, but air carriers outside the European Union can only have up to a 49 percent share in an airline from within the European Union at most. As potential buyers, the Chinese have also mentioned the previous sales attempts by Croatia Airlines, all of which have failed.

Nobody made any serious offers or even showed a great deal of potential interest back in the 2013 recapitalisation bid, although Indonesia's Garuda and China's Hainan Airlines were mentioned as potential buyers. Of course, nothing came of it.

The then government started looking for a strategic partner for Croatia Airlines once again back in 2015, they hired IFC, a World Bank fund that verified the interest of European and world air carriers for the Croatian national airline. At that time, Korean Air and Taiwanese Eva Air were mentioned as the most prominent companies. IFC was supposed to propose a proper privatisation model for Croatia Airlines, after which a public tender was to be launched. But yet again, nothing came of it, because parliamentary elections were held at the end of the year, and the powers that be were subsequently changed.

While the new advisor elaborates the model of privatisation of Croatia Airlines again, the government will, along with the European Commission, try to find a way and hopefully agree on how the state could further assist the still struggling Croatia Airlines.

The Croatian proposal will be to increase the amount of public service obligation (PSO) contracts that Croatia Airlines gets for domestic flights, currently amounting to 75 million kuna. In addition, this year the Croatian National Tourist Board will receive 7.5 million kuna for joint advertising.

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Click here for the original article by Josip Bohutinski/VL on Poslovni Dnevnik