The steps to privatizing a state owned airline are often difficult and

The steps to privatizing a state owned airline are

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The steps to privatizing a state-owned airline are often difficult and protracted. The government and the unions must be fully committed to privatization. This usually occurs only when the airline is faced with insolvency and liquidation, a point at which privatization also becomes more problematic. State-owned airlines are invariably in debt to the government; these loans must be written off as few outside parties are willing to assume the debt. An infusion of funds is often necessary as subsidies are ended. Costs must be reduced to a competitive level by layoffs, wage and salary cuts or freezes, increasing flexibility in work rules, and management restructuring free from government interference. Finally, network and fleet rationalization is necessary including dropping of unprofitable routes and reducing the number of fleet types. When these preliminary steps are completed, several options are available to privatize the state- owned airline. The state may simply auction the airline to highest bidder and keep the proceeds. Rather than an open auction, the state may negotiate the purchase with a single party. In some instances, the management and/or employees can arrange financing to purchase the airline. Employees can be granted stock, generally in return for concessions and efficiency improvements. Granting stock to employees aids in transition to competitive market. British Airways, for example, offered employees stock at a discount as it was privatized in the 1980s. If the country has a large, developed stock market, the state may issue an initial public offering of shares in the company. In such instances, the state often remains a minority owner. The results of privatization efforts are mixed with many examples of success and failure. In the 1980s, the British government under Margaret Thatcher successfully privatized much of the UK-owned industry including flagship British Airways. BA, of course, remains one of the world’s premier airlines. Elsewhere in Europe, several attempts at privatization suffered repeated failures before finally meeting with some success. Under several administrations, the Italian and Greek governments repeatedly failed to privatize the state-owned carriers Alitalia and Olympic Airways. At Alitalia, employees often struck when faced with cuts and restructuring and the government usually backed down. Eventually, with cash depleted and the EU prohibiting more government bailouts, Alitalia was broken-up and the airline operations merged with the Italian LCC Air One. Later, Olympic was privatized and merged into the Greek carrier Aegean. The Hungary government tried repeatedly to sell its flag carrier Malev finally finding a buyer in 2007. But, Malev was renationalized in 2010, and then ceased operations in 2012 when the European Commission ruled that continuing state subsidies were illegal.
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