SKYEUROPE: DEBT-FUELED NOSE DIVE

UNCLAS SECTION 01 OF 02 BRATISLAVA 000388

SIPDIS

STATE FOR CA/OCS R. DOWELL
STATE FOR EEB/TRA J. BYERLY AND M. FINSTON
DEPT OF TRANSPORTATION FOR STEPHEN HATLEY
STATE FOR EUR/CE J. LAMORE
AMEMBASSY PRAGUE FOR B. ROCKWELL
USEU/BRUSSELS FOR M. CATON

E.O. 12958: N/A
TAGS: EAIR ECON PGOV LO XG
SUBJECT: SKYEUROPE: DEBT-FUELED NOSE DIVE

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1. (U) SUMMARY: With mounting cashflow problems forcing it to
miss payments to airports and suppliers, SkyEurope ceased
operations and prepared to file for bankruptcy shortly before
midnight on August 31. Never once turning a profit in its
eight-year existence, the budget airline's financial health
worsened dramatically in the past year as the economic crisis
deepened across Europe, simultaneously reducing customer demand
and making it more difficult to obtain the short-term financing
necessary to keep the company afloat. SkyEurope's rapid descent
began last October, when several of its leased planes were
seized by their owner for nonpayment. The airline continued to
hemorrhage cash this year, and two weeks ago the Vienna airport
abruptly ceased offering it services, forcing it to scramble to
relocate affected routes to the nearby airport in Bratislava.
The sudden bankruptcy has left many customers holding worthless
tickets, and it seems unlikely they will receive refunds.
Embassy Bratislava has not yet received any reports of Amcits
stranded by the collapse of the airline. END SUMMARY.




2. (U) Already in precarious financial health and reliant on
bridge loans to remain solvent, SkyEurope's situation worsened
soon after the financial crisis began last fall. In October
2008, GE Commercial Aviation Services (GECAS) recalled four
planes that it had leased to SkyEurope; this was followed
quickly by a recall of six additional Boeing 737-700 jets by
GECAS in January 2009. Faced with the loss of ten of its 14
planes, SkyEurope temporarily borrowed older aircraft from Air
Slovakia and Seagle Air in order to continue its operations; it
eventually was forced to reduce its routes. Further
highlighting its cashflow problems, SkyEurope also announced in
January that it had secured an agreement with Longstock SAPO LLC
to delay repayment of its EUR 10 million bridge loan.




3. (U) As business conditions continued to deteriorate--the
number of SkyEurope passengers fell nearly 23 percent in the
year to July as the airline posted a EUR 32 million loss for the
first half of the year--the airline filed for protection from
its creditors under Slovak bankruptcy law on June 22. Despite
this, airports in several European cities, including Paris and
Bucharest, reportedly seized SkyEurope planes in an effort to
compel payment of debts. After Slovak courts approved the
airline's restructuring plan in July, SkyEurope announced that
it had secured a new bridge loan to provide it liquidity while
completing an EUR 16.5 million equity investment by the Austrian
group FOCUS Equity B.V. The equity investment was never
completed, however, and SkyEurope's cashflow problems caused it
to miss payments to both the Vienna airport and a number of
suppliers. The Vienna airport suddenly stopped offering
services to the airline on August 14, forcing it to move the
affected routes to Bratislava's airport. Further payment
difficulties caused the airports in Prague and Bratislava to
suspend service on August 31, leading to SkyEurope's
announcement later that night.




4. (U) According to press reports, thousands of travelers have
been stranded throughout Europe as a result of SkyEurope's
collapse. The airline had been flying 33 routes connecting 16
European countries. Although most other budget airlines
operating in Europe have announced "rescue fares" for these
stranded passengers, it is uncertain whether any of the 280,000
people reportedly holding a SkyEurope ticket for travel in the
next six months will be able to get a refund. SkyEurope's
website offers little hope, merely suggesting that customers
contact their credit card companies or travel agents--several of
which, for their part, have already deflected responsibility
back to the airline. Embassy Bratislava has yet to receive any
reports of Amcits stranded due to SkyEurope halting its
operations.




5. (U) COMMENT: While the end was rather sudden, SkyEurope's
demise was long anticipated. Although CEO Nick Manoudalis has
announced plans to form a new airline under the same SkyEurope
name, it seems an unlikely proposition given the spectacular
flame-out that left thousands of passengers stranded throughout

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the continent. SkyEurope's rivals, particularly Hungarian
WizzAir and Ireland's RyanAir--both of which have recently
announced plans to expand service to Bratislava--seem poised to
fill much of the void left by its departure. Additionally, the
Bratislava airport has long hoped to steal some of the routes
currently flying into the Vienna airport, and construction has
begun on a new terminal championed by Prime Minister Robert Fico
that will result in a doubling of the airport's capacity. As a
result, it seems likely that SkyEurope will ultimately be little
missed. END COMMENT.
EDDINS