Czech Smartwings Eyes Aid Without Giving Government A Stake

Smartwings, the Czech low-cost airline, and owner of flag carrier Czech Airlines, announced this week that it does not want to be taken over by the Czech Republic as a way of being supported through the COVID-19 crisis. Instead, Smartwings wants state-backed guarantees to help cover its losses resulting from a full fleet grounding that lasted a month and a half.

SmartWings Boeing 737-800 taxiing at Corfu airport
Smartwings is not accepting government support in the form of total or partial nationalization. Photo: Getty Images

What does the Czech Republic want?

Reuters reports this week that Smartwings is seeking state support following a severe financial hit to the airline resulting from a coronavirus-related shutdown of operations. Smartwings also owns one of the oldest airlines in the world and the Czech Republic’s flag carrier, Czech Airlines. As such, it is requesting government support from a very strong negotiating position.

Last week, the Czech Republic’s Industry Minister Karel Havlicek suggested that one way in which the country could help the airline is by entering its ownership structure “up to 100%”. Finance Minister Alena Schillerova then backed this proposal. Smartwings and Czech Airlines employ 2,500 people in the Czech Republic and have been deemed an organization of strategic importance by their country’s government.

Air Algerie, Boeing 737, Engine Shutdown
Smartwings would prefer state loans or state guarantees. Photo: Laurent Errera via Wikimedia

What does Smartwings want?

However, Smartwings has now rejected the government’s proposal unequivocally, suggesting that it is asking the state “mainly about a loan or loan guarantee.” The airline has said it has “no interest” in the government acquiring a stake of any kind in Smartwings.

It would appear that the airline would accept loans and non-grant funding of any kind, so long as its ownership structure is not compromised. This is the same scenario as we saw last month with Lufthansa and Germany. Lufthansa Group was reported to be examining bankruptcy proceedings as a way to pressure the German government to provide it with support on favorable terms.

At the moment, the airline is owned by Czech businessman Jiri Simane and partners, who own 50.1% of the group. The remaining 49.9% is owned by CITIC Group Corporation, a state-owned investment vehicle for China. This ownership structure looks set to stay. It is a familiar model in aviation: Etihad owns 49% of Air Serbia, and Qatar Airways owned 49% of Air Italy.

Lufthansa, Airbus A320, Grounded
Lufthansa was in a similar position to Smartwings – when the German government offered it financial support at unfavorable terms, it refused. Photo: Getty Images

So what is likely to happen?

The Czech government has already come under fire in the country from the opposition parties, which said they do not want the airline to receive government support that is proportionally greater than that which is available to other companies. Industry Minister Karel Havlicek promised a decision would be made until June. This is, as expected, a fairly tight timeline. It is looking increasingly likely that the Czech government will indeed provide support for Smartwings without acquiring a stake in it.

Do you think the Czech Republic is likely to insist on entering the ownership structure of Smartwings?