Slovak Government Unable To Pay Carrier's Debts

Slovakian carrier Slovak Airlines terminated all scheduled service on Tuesday after Austrian Airlines Group (AAG) -- a 63-percent majority shareholder in Slovak -- declined to offer any more financial support to keep it solvent.

In a statement released Tuesday, Austrian Airlines Group said the Slovakian government has failed to honor a long due legal agreement even after receiving several extensions, the latest of which expired December 31, 2006. Since then, AAG hasn't granted Slovak Airlines any further financial support.

AAG said, "Since the decision over the issue promised by the government has been repeatedly delayed, including in the government meeting held on 17 January 2007, and an evaluation under EU law has been decided as what appears to be a conscious and prolonged delaying tactic demonstrating a lack of readiness to pay, there is no perspective for the restructuring of the company."

AAG purchased its 62-percent stake in Slovak Airlines in January 2005 with the understanding the Slovak government would assume $7.5 million of the company's debt. AAG had in mind to restructure Slovak Airlines and guide it through a financial recovery thus avoiding bankruptcy. According to Austrian newspaper derStandard, an audit conducted after the sale showed Slovak's debts at closer to $14 million.

Despite assurances from Slovak's transport minister Lubomir Vazny his ministry would make up the difference, no money from the Slovak government has been forthcoming.

AAG said Tuesday, "It is absolutely unacceptable that - two years after the signing of the contract and when Austrian Airlines, the contractual partner, has suffered substantial damages - implementation of the obligation that was entered into should even come into question. Slovak Airlines will terminate its scheduled services today."

The Austrian company says it owns two of the aircraft operated by Slovak Airlines, and its Board has decided to immediately return the Fokker 100 and Boeing 737-300.

According to AAG's release, the Slovakian government's agreement to assume Slovak Airlines' liabilities, along with a range of other obligations, was a precondition for the stock sale giving AAG a majority stake.

As one of the newest members of the European Union, having joined as one of ten central European countries granted membership in May 2004, Slovakia will have to face the music with the courts of the European Commission -- AAG has said it will pursue all legal options in seeking compensation for damages.

FMI: www.slolvakairlines.sk, www.aua.com