LOT Polish Airlines will receive a whopping $787 million (PLN 2.9 billion) in financial assistance to help it through the current crisis facing the aviation industry. This will come in two packages: a loan and a capital injection. LOT Polish marked the occasion by stating that it was able to receive this much money because of how healthy the airline was financially up until the pandemic.
A major state aid package for LOT Polish from Poland
The European Commission and the Council of Ministers of the Republic of Poland have approved an aid package of PLN 2.9 billion ($787 million) for Poland’s national airline and flag carrier, LOT Polish Airlines. The news comes following several such recent examples in the European Union.
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The PLN 2.9 billion is divided into two parts: a PLN 1.8 billion ($480 million) loan and a PLN 1.1 billion ($300 million) as a capital injection. This amount of state aid was possible because LOT Polish was in such a good financial position before the pandemic, the airline’s spokesperson, Krzysztof Moczulski, said.
A promising business model
The structure of this state aid package for LOT Polish Airlines is such that the airline will be repaying most of the money it will be given. Poland will provide the financing to LOT Polish through the Polish Development Fund. LOT Polish Airlines will repay it within six years, out of the profits that it expects to generate over this time period.
In a press release seen by Simple Flying, Rafał Milczarski, the CEO of LOT Polish, explained this plan by stating:
“The main cost of the airlines’ operations are the lease payments for aircraft, which are paid to foreign financial institutions. Due to the crisis, we have negotiated a significant reduction so that we can apply for state aid and then work out its repayment as soon as possible.”
Emphasizing that the airline has a track record of sustainable operational expansion and profitability, LOT’s CEO also added:
“The airline is a driver for the economy, tourism and a guarantee of the country’s logistical security. Before the pandemic, we had been growing year on year in almost every category and generated record profits. We know how to get back on the path of intensive growth and we will do so.”
Poland needs LOT Polish Airlines
Up until the outbreak of the pandemic, when it suspended all flights, LOT Polish Airlines was a profitable company. It had doubled its operations in the four-year period between 2016 and 2020 and almost doubled its fleet too: it had 45 aircraft in 2016, and it had 80 at the start of 2020. The airline also launched 80 new routes in this time period.
In terms of its importance for the Polish economy, LOT Polish Airlines contributes to over 63,000 jobs in its home country and 0.56% of Poland’s GDP. So should Poland have actually provided even more support?
What do you think of airlines receiving state aid? Should LOT have received more money? Let us know what you think of this story in the comments below.