At a press conference on 5 December 2011, Minister for National Development Tamás Fellegi presented a White Paper that sums up the reasons leading to the current situation of Malév. The minister mentioned the operation of a national airline centred in Budapest and ensuring efficient enforcement of the national economic interests as a priority objective of the government. The Ministry of National Development compiled the White Paper to give a detailed presentation of the reasons leading to Malév’s current difficult situation, name the responsible persons and come closer to the solution by revealing the facts.

The Malév group of companies employ 2600 people and have regular contractual relations with 500 Hungarian businesses. Directly and indirectly, the airline contributes approximately HUF 70 billion per year to the revenues of the central budget. Its revenues, partly generated abroad, raise the company among Hungary’s most significant exporters. It also provides 40 percent of the turnover transacted through the Budapest Airport. Malév transports nearly 3 million passengers on 23,000 pairs of flights per year, and flies planes directly to 45 destinations. Its existence is one of the fundamental factors of foreign project and investment decisions and reinforces the country’s regional role. Thus, Tamás Fellegi stressed, macro-economic factors clearly justified the company’s operation, and the Government thought there was a need for a national airline.

The White Paper lists the lack of a long-term plan to solve the company’s sustainable financing and operation among the failures of the past decade. As the valuable assets (e.g. the fuel service business line, the Heathrow slot, Hyatt Regency business share) had been sold out, by 2007 the company had been deprived of practically all of its wealth. The company has used up its capital and its goodwill has been considerably reduced.

As a result of the abortive privatisation and reprivatisation, Malév is now subject to disadvantageous and troublesome contracts and loans. In the course of this privatisation the buyer practically did not invest or risk any money of his own, while he ultimately re-debited all repayment obligations to Malév. Actually, Malév purchased itself under a Russian umbrella, and having lost its control opportunities and money, it became completely dependent. During the period in private ownership, the airline sank into extreme debts and became practically incapable of independent operation. In addition to the budget effects of renationalisation, the previous government shifted the financial and political responsibility of managing the situation to the incumbent administration.

The European Commission opened a competition investigation in connection with the loans granted and capital increase made in the period between 2007-2010. If in a decision these are found to constitute prohibited state aid under the EU laws, the company will have to repay nearly HUF 100 billion with a compound interest.

Following the change of government, damage assessment, company screening and the search for possible partners started without delay. The Ministry of National Development has been the dealing with the European Union’s procedure started in the case of prohibited state aid, and has provided for keeping the company alive.

However, due to the inherited problems, Malév needs regular financial injections, and in the current structure its operation is unsustainable over the long term.

Tamás Fellegi reported that the Ministry was conducting advanced negotiations with several financially stable strategic investors in the interest of establishing a competitive national airline. However, the Government will not sell Malév before completion of the European Commission's competition procedure, and does not intend to perform the envisaged transaction this year. The Ministry will continue to do its best to sustain the airline and improve the efficiency of its operation.

The favourable effects of the measures made so far are already manifest in the recent trade results, remarkably improving despite deteriorating conditions. In the last quarter, Malév generated approximately HUF 7 billion additional revenues on a year earlier, and utilisation of the flights exceeded 75%, above the European average, Tamás Fellegi added.

The minister announced that based on the facts revealed by the Ministry of National Development, Commissioner for the Investigation of Businesses Affecting State Property, Gyula Budai will make a police report against unknown perpetrators in certain cases described in the White Paper.

The White Paper can be downloaded from the government’s website.

(Ministry of National Development , Department of Communication)