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Czech Republic

Four groups interested in Czech Airlines  Mar 23, 2009

PRAGUE - The Czech Republic received four preliminary bids for its 91.5 percent stake in Czech Airlines CSA and said the winner should be known by the end of September at the latest.

Aeroflot, Air France-KLM, private equity firm Odien and a consortium comprising Czech Unimex Group and Travel Service all submitted applications in the first round of tendering, the finance ministry said on Monday.

The government is selling its stake in the airline as a global economic slowdown has sapped travel demand, putting airlines under heavy pressure.

Analysts expect the sale of what is a relatively small European airline hit by leasing costs as well as the economic downturn to fetch up to 5 billion crowns ($255 million).

Bidders need to meet conditions such as keeping CSA's national identity status to prevent the airline losing international routes outside Europe.

That could happen if CSA was sold to a foreign buyer because of a global system of bilateral agreements between countries governing which airlines can fly where around the world.

Non-Czech bidders will therefore have to combine with Czech entities in consortia to fulfil that condition.

Aeroflot's deputy general director said it had already lined up a partner and part of the funding.

"The difficulty was finding a partner in Europe that would share the risks and financial investments," Lev Koshlyakov said. "But now we've lined up a partner."

Koshlyakov told Reuters Aeroflot had worked out how to secure the first part of the financing to buy the stake. "It is possible to get a loan on the international market," he said.

The Czech government will also assess bidders' security risks with politicians having voiced concerns about Aeroflot's ownership structure. Koshlyakov declined to comment on the matter.

The Russian carrier has long been on the lookout for acquisitions in Europe, and chief executive Valery Okulov, son-in-law of Russia's first president, Boris Yeltsin, told Reuters in September last year the company was eyeing two possible acquisitions, including Czech Airlines.

Air France-KLM said it was entering the process to gain access to CSA's data.

The airline, which sees itself as a major player in European industry consolidation, said Czech Airlines' flight network was highly complementary to its own and would enable it to strengthen its position in central and eastern Europe.

Air France has described Czech Airlines as a close partner, particularly through their membership of the global SkyTeam alliance of airlines since 2001.

Aeroflot, a SkyTeam member since 2006, said it would not consider any further acquisitions in Europe if its bid for CSA was successful. "In the near term I doubt we would be looking for anything else," Koshlyakov said.

CSA made a pretax profit of $550,000 in 2008 on operating revenue of 23.2 million Czech crowns.

Management ended three years of losses in 2007 after cutting costs and boosting revenue by selling off non-core assets, including its catering division, and by selling and leasing back planes.

Four groups interested in Czech Airlines
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