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Hainan Air makes bid for Hungary's Malev airline
By Cao Desheng (Hainan Air makes bid for Hungary's Malev airline)
Updated: 2004-08-14 00:35

China's Hainan Airlines (HNA) is considering making a bid for the loss-making Hungarian national airline Malev.

HNA hopes to have an opportunity to help rebuild Malev and the two sides are negotiating on related issues, HNA President Chen Feng told a joint press conference with Malev's President Laszlo Sandor in Haikou, the capital of South China's Hainan Province.

"Malev boasts an abundant flight network and professional air staff and the favourable geological position of Budapest will contribute to a promising aviation market," Chen said.

Late last month, the Hungarian Government announced plans to sell its 99.95 per cent stake in the ailing State-owned airline and hoped to close the transaction this year.

HNA will complete a feasibility report on reorganizing the stock ownership of the Hungarian airline based on a prudent financial analysis of the company, Chen said.

HNA has consulted Morgan Stanley and some renowned law firms about the issue and the rebuilding programme will be made in accordance with the law of Hungary and international practice, he added.

Sandor appreciated HNA's interest in Malev, saying his company is looking forward to HNA's participation.

Sandor said the Hungarian Government will announce the bid in late September and the data room for potential investors will be open between early September and early October.

Any potential buyer, a single company or a consortium, would have to increase Malev's capital and guarantee the repayment of Malev's debts, which add up to 36.2 billion forints (US$180.3 million), Sandor said.

Most of the debt, 33 billion forints (US$170 million), is currently guaranteed by the State.

Meanwhile, the Hungarian Government has asked investors to retain the existing name of the airline and keep the national flag of Hungary for the company, Sandor said.

Besides HNA, Air France-KLM and Austrian Airlines are also interested in the bid, Reuters reported.

Malev will select a satisfactory partner from interested candidates in line with their economic power, Sandor said.

If the HNA's bid for Malev is successful, it will become the first airline in the country to invest in a foreign aviation company.

The move would give Hainan Airlines -- the fourth largest carrier in China in which Hungarian-born financier George Soros holds a 14.8 per cent stake -- a hub in one of Europe's most popular tourist destinations and a gateway to the European continent, experts say.

The central government encourages domestic companies to invest in their foreign counterparts by share-holding or merging for better allocation of their resources, and HNA is going in that direction, said Lin Yueqin, an economic researcher with the Chinese Academy of Social Sciences.

It is a wise choice for HNA to earn a share of the aviation market in European countries, he said.

However, Lin said, the cross-border merging is complicated and the success rate is only around 10 to 20 per cent, so HNA will have to face a great challenge in financial risk, capital operation and management.

"HNA must improve the awareness to evade risk by investigating the overall conditions of its co-operative partner -- including financial status, legal affairs and company staff -- and having a prudent prediction about the potential market," he said.

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