Air France pulls out from Czech Airlines’ tender

The privatization of CSA Czech Airlines was thrown into doubt Wednesday after Air France-KLM withdrew from the tender because of the downturn in the industry and after examining the Czech carrier’s books, leaving just one bidder left in the process.

The Czech Ministry of Finance said the tender would continue, and the remaining bidder, a consortium of Czech and Icelandic investors, said it remains interested despite Air France-KLM’s withdrawal.

But the process has been dogged by delays and problems. In June the Czech government extended the deadline for final bids to Sept. 15, from July 13, saying it wanted to give the bidders more time to value the company and prepare offers. Some industry experts, however, blamed the delay on weak interest. The Czech cabinet was expected to examine the bids Sept. 30.

The Ministry of Finance, which is running the privatization process, had picked Air France-KLM and a consortium of Czech financial firm Unimex and charter airline Travel Service for the privatization shortlist. Four bidders had originally shown interest, but Russian airline OJSC Aeroflot and Odien AV III AS, a private-equity fund of Odien Group, a financial firm active in the region, weren’t included in the shortlist.

“We’re moving forward in step with the tender’s conditions, now we’re doing due diligence,” said Vladka Dufkova, spokeswoman for Travel Service and the Czech consortium. The group will submit a bid by the mid-September deadline, she added. Icelandic airline Iceland Air Group Holding is a shareholder in Travel Service. Ms. Dufkova declined to say how the consortium would finance the purchase of Czech Airlines if it wins the tender.

“The Ministry of Finance will continue in the tender and the process won’t be changed,” said Ondrej Jakob, the spokesman for the Czech Finance Ministry, declining to take any further questions.

Air France-KLM’s withdrawal comes as the global airline industry is going through one of the worst downturns in its history, with passenger numbers and cargo volumes tumbling amid the economic downturn and credit crunch. Airlines are seeing profits drop sharply or turn to losses as a result and are trying to preserve cash by cutting costs, capacity and staff.

The Franco-Dutch airline said it believes that “CSA might focus on developing and implementing a stand-alone recovery plan aimed at restoring its profitability.”

Aside from the tough business environment and worsening financial position for both airlines, Air France-KLM had decided that the expected synergies from a tie-up wouldn’t be enough to justify the investment, said a person close to the matter. An Air France-KLM spokeswoman declined to comment beyond the company’s statement.

If the privatization is delayed, it will come as a blow to a Czech government trying to deal with a worsening economic situation in the country. The Czech state had hoped to generate about $270 million by selling its 91.5% stake in Czech Airlines, which is a member of the Air France-KLM-led Sky Team alliance.

In May, Czech Airlines reported that its pretax loss widened to 1.32 billion koruna ($72.8 million) in the first quarter, from an 844 million koruna loss a year earlier, as passenger numbers fell 12%. It has said it expects to swing back to a profit in 2010 unless there was a significant worsening of the economy.

Air France-KLM, meanwhile, posted to a fiscal-first-quarter net loss of €426 million, as the economic crisis and €252 million in losses from fuel hedging hit hard. The Franco-Dutch airline forecast a sustained deterioration in its passenger business in the second quarter and said the declining trend in its cargo business would continue into the fiscal second half, when the situation should gradually stabilize.

Under the privatization conditions for Czech Airlines, a winning bidder will be required to maintain the Czech carrier’s national-airline status and keep its base at Prague Ruzyne international airport. Air France-KLM said it hoped it could cooperate even more closely with the Czech carrier even though it won’t now acquire the airline. In July, it was announced that Czech Airlines had won a tender to provide passenger-handling services for Air France-KLM in Prague.