European Commission launches probe of state aid to Polish airline LOT
By Chris Borowski
WARSAW (Reuters) - The European Commission has launched an in-depth investigation into whether Poland broke competition rules when it gave about 200 million euros (168 million pounds) in state aid to its money-losing airline LOT.
If the investigation concludes that the rules were broken, the airline could be forced to hand back at least some of the money, worsening its already precarious financial position or even forcing it to declare bankruptcy.
"The Commission will examine in particular whether the planned aid will enable LOT to become viable without continued public funding and whether the company offers adequate compensation to alleviate the distortion of competition caused by the state support," the Commission said in a statement.
LOT's chief executive, Sebastian Mikosz, said he had expected the European investigation.
"It is standard for the commission to launch such procedures when it comes to entities, including airlines, that go for public aid for restructuring" he said in a statement.
There was no immediate comment from the Polish government.
LOT, one of the world's oldest airlines, has struggled to compete with the bigger networks of rivals such as Lufthansa and with low-cost competitors like Ryanair .
The state-owned airline has burned through government funds and come up with several turnaround plans that have failed to have a lasting effect. It reported a loss of 400 million zlotys last year and expects to remain deep in the red in 2013.
It had been banking on the acquisition of Dreamliner jets from Boeing to improve its fortunes. But those aircraft have been repeatedly grounded due to technical problems, and LOT is seeking compensation from the manufacturer.
In its statement, the Commission said it had doubts over whether the latest restructuring plan unveiled by LOT - a condition for getting a fresh injection of state aid this year - would make the airline commercially viable.
It also said it had doubts over whether cuts in LOT's capacity, to off-set any distorting effects on the market from the state aid, were sufficient, and whether LOT itself was contributing enough to the cost of the re-structuring.
The Commission has recently opened other investigations into public support measures granted to national flag carriers including Air Baltic, Adria Airways, Estonian Air and SAS.
Last year, Hungarian airline Malev collapsed after the Commission demanded that it give back some 130 million euros in state aid.
(Additional reporting by Adrian Krajewski; Editing by Christian Lowe)
