The endgame for Olympic Airlines

Olympic Airways has been stumbling from crisis to crisis, privatisation seems to be imminent, but not definite. NICK SKREKAS examines the fate of Greece's national carrier.

MOST Greek Australians travelling to the homeland have at some point flown with Olympic Airways, Greece’s national carrier, well at least up to 2002 when it quit one of its most important routes between Melbourne, Sydney and Athens.

There is pressure on the state to complete the deal quickly to off-load continuing losses as well as the impatience of European authorities. Politicians have previously claimed that for every day that Olympic operates in its current state the Greek tax payer is saddled with another one million euros of costs.

The decision to quit Australia was not well received by Melbourne’s large Greek community and worse given that it was mismanagement and overweight bureaucracy that made one of its more lucrative routes, with 85 percent capacity, lose money.

Olympic Airways is in deep trouble, having now accumulated more than 2.7 billion euros of debt.

This debt has been compounded by the EU’s belligerence in blocking state aid in efforts to maintain a level European wide playing field. Over the last decade there have been numerous failures to bring in strategic investors to restructure the company or fully privatise it. And last ditched international privatisation efforts by the incumbent government sunk in January.

Now the situation is more pressing than ever and Marfin Investment Group (MIG), Greece’s largest holding and buy-out company, seems to be the last and only white knight. To keep Olympic afloat and Greek this endgame has to succeed.

While Olympic has more than five decades of solid experience it also has an extremely bloated workforce of about 8,000 employees that are not well regarded for their efficiency.

The most recent attempt to sell the carrier was approved by the European Commission that agreed to suspend action over illegal state subsidies if a sale went ahead.

But Minister, Costis Hatzidakis, finally admitted: “The tender was void. We did not receive the offers we hoped for. We are moving to a new stage for the sale of Olympic”.

At the moment Olympic still faces the prospect of an unbecoming death spiral if a local private investor does not come to the rescue by injecting capital, appointing better management and applying an appropriate strategy to turn it around.

The Greek government’s final gambit is to appeal to local businessmen to enter into direct negotiations to acquire the ailing airline after its spectacular failure to sell it to an international group.

“MIG decided to respond to the Greek privatisation committee’s call and will conduct direct talks so that Olympic can continue to operate as a Greek enterprise,” MIG said in a filing to the Athens Stock Exchange. Dubai Group, the Gulf state’s investment arm, holds a 17 per stake in Marfin.

MIG has now submitted a rather complex binding offer. It is offering 45.7 million euros for the transport services of the airliner namely Olympic Air, 16.7 million euros for the maintenance unit of the airliner and 70 million euros for Pantheon Airways the phoenix company that holds the rights, names and trademarks of Olympic. Sources say that if MIG wishes to acquire the carrier’s aircrafts it has to raise its offer by 90.3 million euros but it is more likely to opt for new aircraft. Additionally, Swissport has placed a 44.8 million euros offer for Olympics’ ground handling services.

The negotiations are expected to last another two weeks. All of the debt liabilities of the airline are going to be undertaken by the Greek state which will also be paying for a voluntary redundancy scheme for any employees that MIG does not need. They will get some substantial pay-offs or re-appointments to other public service jobs.

The total offer for all the business segments of the airliner stands at 177.2 million euros which sources say is close to what the Greek government was asking for. Nevertheless, a number of details still need to be resolved – like how the company will be restructured in order to become profitable and the intentions of the bidder in terms of adjusting the Olympic’s business model.

But in truth MIG has an excellent chance to acquire the carrier given the absence of any other serious interest for Olympic. It is abundantly clear that the Greek government might not get another chance to sell the airliner under current market conditions unless they accept the offer of entrepreneur and MIG Vice-President, Andreas Vgenopoulos.

Dimitris Anastassakos, investor relations officer at MIG said “we will be making some proposals to the state that we want to be accepted and we will be exploring the detailed conditions of the state’s privatisation process”. MIG has a team of experts to analyze the potential investment.

“If we buy Olympic, we will be doing so without its current debts, legacy costs and staff. Some of the staff may be asked to remain but on new terms and conditions and the rest of the current work force will have to be dealt with by the state since that won’t be our responsibility,” Anastassakos said.

There is pressure on the state to complete the deal quickly to off-load continuing losses as well as the impatience of European authorities. Politicians have previously claimed that for every day that Olympic operates in its current state the Greek tax payer is saddled with another one million euros of costs.

Just like Onassis, Vgenopoulos has referred to his patriotic duty to promote Greece’s image and hold the flag of the national carrier up high in the clouds. “Olympic’s operations is of vital importance to the Greek tourism industry, employment, national sentiment and Greece’s status in the international investment community,” he said. Even so, Vgenopoulos has been careful to avoid generating political controversy over the acquisition.

He met with the main opposition socialist party president, George Papandreou, and has been given sufficient assurance and a low key blessing for his initiative, sources say. Vgenopoulos is said to be open to a partial re-nationalisation of the carrier if socialist PASOK comes to power.

Analyst Panayiotis Kladis of National P&K Securities, widely considered to be a foremost expert on Marfin takes a more cautious view of MIG’s intentions regarding Olympic Airlines. “Given MIG’s track record I find it hard to believe that if they do actually invest that they will hold onto Olympic for very long. MIG tends to emphasize a trading as opposed to buy and hold strategy”.

Kladis suspects that this is partly a communication exercise to improve MIG’s relations with the state, as well as raising their positive profile with the Greek public.

But MIG’s Anastassakos rebutted the argument saying this is not the case for significant holding company investments. He thinks the market has misunderstood and judges MIG rather harshly because they were in effect forced to dispose of their significant interest in Greek Telecom incumbent OTE due to indiscriminate regulatory blocking action.

“As a strategy, entering aviation will not be easy for MIG because at the moment they don’t currently have the deep skill necessary to run an airline, they may be looking for the right executives to manage Olympic,” Kladis added. Furthermore, aviation is a business with significant challenges and not one that is easy to make profits in. There are also rumors that MIG will ask to close the deal in autumn giving them enough time to prepare for revamping the fleet and the operational management.

Expert sources say that MIG has about 800 million Euros in cash and it has access to another 200 million Euros in cash from its subsidiaries.

Therefore, buying Olympic will not stretch its balance sheet and is unlikely to make a huge impact on its operating performance. But MIG may eventually buy the carrier in a consortium with several Greek shipping magnates where others take minority stakes. And Vgenopoulos is known as an inclusive negotiator.

The ruling New Democracy government is praying that high profile former lawyer Vgenopoulos will pick up where the Onassis legacy left off, after Olympic was run into the ground through past government nepotism and corrupt permanent public service appointments. The sooner it is out of public hands – the better.

Kladis added: “In my view buying Olympic is a risky bet for MIG”. Let’s all hope that the bet comes to fruition and pays off because otherwise we could lose a historic Hellenic icon.