MALÉV: The sad story of Hungary's national airline

The first time I flew on Malév was in December 1993. An Internet friend living in Stockholm alerted me to a special fare on a direct New York-Budapest flight. Indeed, it was extraordinarily inexpensive but, despite the low fare, the plane was practically empty. Nearby me sat a traveling salesman with samples of his ware. The stewardess who took a fancy to him amiably chatted with him. She was a great deal less attentive to the other passengers. By the way, I made the mistake of talking to her in Hungarian, thinking that after all Malév was a Hungarian airline. It turned out that she knew no Hungarian. If I recall, this particular New York-Budapest flight was a joint venture of Delta and Malév and the two companies shared personnel.

About a year before, in November 1992, the Italian national airline Alitalia and an Italian bank purchased a 35% share in Malév, but this partnership did not last. In December 1997 Hungarian banks repurchased the Italian share so that Malév was owned almost completely by the State Privatization and Property Corporation (ÁPV). However, the state desperately wanted to get rid of Malév because it was a constant financial burden. After many years of trying, ÁPV manged to sell the airline to AirBridge, a Russian company, largely owned by Boris Abramovich. That was in 2007. Two years later a minority stake of AirBridge was acquired by the Russian bank Vnesheconombank and the daily operation of the airline was run by this Russian bank.

The Russian connection didn't last long either. After three years, in February 2010, the majority (95%) owner of the airline once again became the Hungarian state. Since Malév was in financial straits, the Bajnai government injected 25.36 billion forints into the company only a few months before the national elections. Wizz Air, a competitor, initiated proceedings against the Hungarian government's financial aid package for Malév, which, they contended, was "illegal state aid" according to European Union rules.

After the elections the Orbán government tackled the Malév problem. Viktor Orbán hoped that the Eastern wind would blow a Chinese investor to Hungary who would purchase Malév. There was a lot of talk but no results. In August 2011 the Hungarian media hinted about an alleged Czech offer for the purchase of Malév. By December Tamás Fellegi mysteriously announced that serious negotiations were underway for the creation of "a new Hungarian national airline with Budapest as its center." 

In January 2012 came the very bad news that the European Commission had determined that the state aid to Malév was indeed illegal and that Malév must pay back all the money it received from the Hungarian government ever since 2003. The amount was a staggering 88 billion forints. Certain bankruptcy was predicted. So, two days later the Hungarian government stepped in and rescued Malév. Shortly before its creditors could salvage what was left of the firm after its payment deadline expired, the government declared Malév "a company of strategic importance." This provision in Hungary's bankruptcy regulations allows the state to protect businesses that are endangered but that allegedly serve some great national interest.

By yesterday, in spite of the steps taken to shelter Malév, it looked as if the Hungarian government was preparing the ground for the airline's bankruptcy. For instance, it issued regulations about the compensation of passengers holding tickets.

And yet the CEO of Malév repeated again that the government is committed to "the existence of a national airline. "I'm becoming suspicious that this "national airline" may not be Malév. Let's not forget Fellegi's announcement last December about serious negotiations with certain European investors over "the creation of a new national airline." What do Viktor Orbán and his canny friends have up their sleeves? Perhaps if that national airline is no longer called Malév, it doesn't have to pay back the 88 billion forints the airline received from the Hungarian government or its other financial obligations.

It wouldn't be the first time shrewd businessmen behind Fidesz come up with such innovative solutions. Lajos Simicska and Csaba Schlecht "sold" twenty Fidesz-owned bankrupt companies owing millions and millions of forints to two foreign guest workers in Germany, a Turk and a Croat. Neither man knew anything about the transaction. Their passports were either stolen or borrowed. Fidesz got rid of the companies in part because they owed an incredible amount of back taxes. I wrote about this case on September 8, 2008. In any event, I'm suspicious.

Two days ago Malév was obliged to delay the departure of a plane full of passengers bound for Brussels for an hour and a half. The prime minister was supposed to take that flight, but it seems he was running late. In fact, when he still hadn't arrived at the airport after an hour and a half, the plane left without him. Viktor Orbán has a history of treating Malév as if it were his private plane company. During his first stint as prime minister he pulled this kind of stunt several times. But if my suspicion is at all well founded, then it really doesn't matter how much it cost Malév to delay that plane. It will all be forgotten and some fool may actually purchase "a new national airline."

Comments

[GW]

If the routes flown by Malev have any potential value, I wouldn't be surprised if it followed a path like that of Swiss Air, for 70 years the national carrier of Switzerland, which went bankrupt after 9/11/2001, its assets were then reorganized, more-or-less as the new firm, Swiss International Air Lines, which received and still has the flag carrier status although it was purchased by the German carrier Lufthansa, starting in 2005. Yes, it is possible that Hungary could end up with a flag carrier, whether based on the assets of Malev or not, that is wholly owned by non-Hungarians. Potential foreign owners may well, however, be apprehensive about investments in Hungary due to the Malev record, the sad story of Canadian management at Ferihegy, and that 70-year lease to Chines interests of another airport.

[Ron]

Another possibility is that they split Malev into two company. One with all the debts and the other one with the assets.

The problem is that the planes of Malev are leased, so the leasing company needs to "agree" with this move.

[Ron]

If the Malev is "saved", may be the next thing they may consider is MAV and BKV.

[Ron]

Off Topic: The next few days will be extremely cold in Hungary temperatures ranging from -10 to -16 at night.

Also during the day it is cold. In order to save money on heating some schools closed their doors for a few days.

[Paul (the original one!)]

Thank you Éva, it's nice to know someone is reading my posts!

A national 'flag carrier' is pure governmental/nationalistic vanity, it rarely makes any commercial or economic sense.

I've only flown Malév intentionally once - my first trip to Hungary - and it was a pleasant enough experience (certainly compared to cattle class on easyJet). And I've flown with them a few other times by accident, when they've provided the second leg of an internet booked budget flight. But I never again intentionally booked with them - for one simple reason: money.

Each time we fly to Hungary and suffer the hell that is an easyJet flight, I swear we're going BA or Malév next time, whatever the cost. But each time I book our flights I check the eJ prices against BA/Malév and the 'conventional' airlines are always two or three times as much.

I would pay another £10 per passenger, per flight for more leg-room, allocated seating and cabin crews that are old enough to vote, maybe even another £20, but not the £100+ they are typically asking.

How on earth does a company expect to compete in such a competitive market with prices two or three times higher than the competition? Malév needs to be drastically remade as a budget airline, able to compete with eJ and Wizz, or it needs to be humanely put down.

As I said in my earlier post, I am at a complete loss to understand how it survives and has survived so long. Where does the money come from? Even the billions pumped in by the Hungarian government aren’t enough to have kept it running this long.

[CharlieH]

London Calling!

Call yourself a lawyer? Any commercial lawyer worth his salt would have understood that the government aid given to Malev was incompatible with EU law.

To then run the risk of having to pay back the subsidies – and with no contingency plan – and bankrupt the airline in the process, is unbelievable incompetence. It's worthy of a cameo in Mutt's Damons satire recommendation 'Witness'. (Oh No! Prison again!)

Aviation lawyers have earned zillions in 'illegal subsidy' litigation and any prudent Naional carrier would run their plans through the anti-competition lawyers.

Call yourself a lawyer? Just what legal discipline did Orban study?

Regards Charlie

[Paul (the original one!)]

This is one of the keys to understanding Orbán. He is bright enough and knowledgeable enough that he should know that he won't get away with risky tactics like these, but he convinces himself that somehow he will.

He manages to believe so strongly in things that, rationally, he should know are wrong, that he also convinces himself that others will also believe - that his belief will become 'truth'.

His whole political strategy is built on this assumption. And, unfortunately, until very recently, is was 'proven' to work.

[CharlieH]

Btw Paul

Ryanair are thinking of resuming flights to Budapest in the spring after an 18 month hiatus (from Stanstead). (Sorry if you already know!)

So now you will have a choice of cattle class!

Regards Charlie

[Minusio]

I basically agree with Paul.

The first time I flew Malév was in September 1993 (Zurich - Budapest). It was a biggish Boeing, half empty. Friendly staff, punctual, everything.

In later years, I almost always went by car because I had to carry lots of much-wanted stuff to Hungary. From Basel that was (finally) a good 10-hour night drive (1240 km), but once, in 1995, I had to add another six hours at the Austrian-Hungarian border in mid-winter. All that became rapidly better, year by year, owing to more motorways and few speed limits on German motorways.

From 2000 onwards, Malév had become totally overpriced. They had just two flights a day. Swiss, in contrast has three flights a day (code sharing with Helvetic), uses a smaller plane between Budapest and Zurich (but uses an Airbus if necessary). Fares vary a lot according to when you want to fly and when you book. And it is not a cattle transport like EJ - and you don't land out in the sticks.

Malév deserves to be grounded because it has no competitive business plan, although it was good, from a technical point of view.

[Paul (the original one!)]

Charlie - they've gone beyond the 'thinking' stage, you can now book London-Budapest with Ryanair. And they are actually landing at L-F airport, not 2 hours drive away!

Personally I hate Ryanair, partly because they are a horrible airline to fly with, but mostly because of their attitude towards passengers and staff, and would only fly with them if they were 50% cheaper than eJ - or flew direct to Debrecen!

But that's all academic anyway, because they are only flying from Stanstead, which is a nightmare to get to for us.

Still, I live in hope that Kósa will one day find it in his interests to give O'Leary a big enough bung to make it worth Ryanair's while to fly London-Debrecen!

[riviera1]

@ what incompetence?

My, my, people still don't appreciate the true deviousness of the Hungarian mind. Malev has been a means for the government--both MSZP and Fidesz--to transfer funds out of the national treasury and into their own pockets. Nice game.
Hasn't anyone wondered why neither party, inspite of gross fraud while the other is in power, has neglected to serve up severe laws against fraud committed by government members? Or even an oversight committee with some bite?

To these still-communist-minded-parliamentarians...you steal
as much and as fast as you can. It is truly disgusting, and as they once wrote, "..there's no exit to Brooklyn".

[Paul]

OT, but very topical - Lázár János (Fidesz caucus leader and mayor of Hódmezővásárhely) is trying to 'persuade' Erste Bank to agree to a 'forex loan' type deal on the 18b Ft his city owes them. And so far they seem about as likely to agree to this as I am to be able to pronounce Hódmezővásárhely!

See politics.hu piece on this - http://www.politics.hu/20120201/janos-lazar-and-the-shame-of-deadbeat-hungary/

Éva - if you have a spare slot in the next few days, could you do a piece on this and the situation re other cities in similar predicaments? Thanks.

[riviera1]

@saving BKV?

Perish the thought. Orban would shudder at the very idea. Why, he will leave the Budapesters billowing in the winds for
voting against Fidesz.

He's one angry little Napoleon, that boy...

[Paul]

Malév, BKV and MÁV may appear to be similar organisations in simmilar situations - they are all transport providers and are all in the deepest poo financially.

But in one very important way, Malév is very different. Hungary needs BKV and it needs MÁV. It doesn't need Malév.

[Aurélie Martin]

Sad story, but interesting article!

PS: I think that this particular time the delay on Monday 01/30 was actually caused by the general strike in Belgium. The EU asked the participants of the European top to land at the military airport of Bevekom, instead of the commercial airports Brussels-Zaventem or Charleroi.

[Mutt Damon]

@Paul When "LaserJohnny" (he had an illegal radar detector on his taxpayer financed $100k Audi A8) and Hódmezővásárhely took the CHF loan, they initially made 1 billion HUF on the improving exchange rates, Interestingly they didn't want to share the gain with the Erste bank only the loss. Hmmm, interesting ...

[anecdote]

Paul on VO:
"He manages to believe so strongly in things that, rationally, he should know are wrong..."

Absolutely right. Political psychology jargon for this is "low concept complexity".
Another sufferer is Tony Blair, who regularly comes out with: "I only know what I believe".

[Dubious]

I regularly fly Malév, for reasons known only to the person who does the bookings for the firm. Many routes (ie, not to the UK) don't have a low-cost equivalent, and of those routes Malév is often noticeably cheaper than the competition. It will still be a while before business flights (not business class, just flights for work) will go to the low-cost carriers. (I would happily fly them if I could pocket the difference in airfares.)

I have no complaints, but I do think it is funny that on some flights the only food they give you is some ropi. Or, maybe, if you are lucky, a ham or cheese sandwich.

[CharlieH]

London Calling!

Hey Paul and Mutt!

Good Idea Paul and Good Point Mutt.

In Eva's previous post - and on topic I thought - I wrote:

"The sheer chutzpah of the mayor of Hodmezovasarhely thinking he can renegotiate the terms of the municipal currency loans with Erste bank shows how this lack of integrity and elastic contract law has permeated through the whole of Hungarian society. 'Orbanistic opportunism' or Orban's elastic contract law is all-pervasive. (Would the Mayor have offered a rebate to the bank if the currency had moved in his favour?)"
February 01,2012 at 10:47am

I always read your responses which are always illuminating! And I enjoy your wit Mutt!

Regards Charlie

[Ron]

Gyula Budai is now blaming the Socialist for the failure of Malev. He forget to mention that the Supervisory Board of Malev always consists of Fidesz members, and they were firing the CEO regularly.

Btw here is a story why Malev was re-nationalized : http://www.flightglobal.com/news/articles/troubled-malev-is-renationalised-338886/

[Odin's Lost Eye]

I agree with you whole heartedly except that the Viktator and his cronies do. No truly Great Viktator can arrive in anything less that the latest flying machine. After all the President of the US of A has to turn up in ‘Air Force 1’ which is an old Boeing Jumbo dating from the ‘70s. The surely Viktator is greater than that.
What are his minions going to do when they go Christmas shopping in Vienna, Berlin or Paris? They too must reflect the ‘Might’, the ‘raw Power’ and ‘Glory’ of the Viktator’s regime!

I flew twice on MAV. The first time was in the late 90s, with a group of 4 other ancient astronomers. On boarding I knew that the staff would speak Hungarian. I do not so I asked them in ‘pigeon’ “Nee Boss, what time dis big tin chicken bring dis fellar Budapest bye-me-bye”. The flight attendant’s face went absolutely blank. At the tea/coffee service I said to another attendant “You catchee me little tinee brown”. The lady queried what I meant "tea or coffee"? I replied it did not matter as it all came out of the same pot, tasted the same, and was brown. She passed me by (thank god).
The in flight meal was rather old (it stunk to high heaven) and the conversation in the group went something like this: -
“Slabber de gullion”?, Aye definately
“Slabber de gullion”?, Yer!
“Slabber de gullion”?, grunt!!
Omnes –“SLABBER DE GULLION”! “SLABBER DE GULLION”! “SLABBER DE GULLION”!
Me “KEELHAUL THE COOK”! (there is nothing like a good keelhauling to improve the cuisine).
The cabin staff were worried and we were met by a lot of security.

The second flight I was sat next to very large Hungarian who dumped all his hand luggage on top of me, where it had to stay until London. Not nice but at least I was not served the ‘meal’.

[Bowen]

Like one of the commenters above, I'd agree that Malev is very useful when flying points south and east. There are few alternatives to getting to places like Sarajevo, Skopje or Bucharest without extreme land journeys. Yet, these flights (often just an hour in duration) are extremely expensive, so not really for the average traveller in mind.

In that sense, Malev does provide an important (and, in the right hands, potentially lucrative) service in the region, especially for necessary business/political/NGO travel.

A case in point: flights between Budapest and Ljubljana ceased quite a while ago (I don't know why). The only public transport alternative is an eight-hour train journey stopping in every village along Balaton. One conference organiser I know, who needed to arrange transport for a Slovenian delegate, simply decided that the most efficient way was for her to drive the 400km to Ljubljana, pick up the guest and rush back to Budapest.

[Paul]

Malév is effectively in administration:
http://www.portfolio.hu/en/economy/hungary_malev_gets_state_receiver.23725.html

But they are giving it special protection as a "company of strategic importance". No contracts can be broken, only bills agreed by the administrator will be paid, debt collection is suspended.

Amazing! It effectively means that if you are owed money by Malév you can't get it, and if you are a supplier you have to keep supplying, even if they aren't paying.

All this for a minor airline that should have been closed down or sold 20 years ago.

[kormos]

@Young fella Odin
Sh*t happens when you fly on MAV. Have another sip. Bonne Sante!

[Mutt Damon]

We may have a bankrupted our own airline but hey, guess what, the first Hungarian satellite to be launched on 9 February 2012.

All things have to start with Ma- (Magyar) in Hungary so the guys at my alma mater (BUTE, Electrical Engineering) named it MASZAT-1 (magyar satellite). Maszat means a speck of dirt in Hungarian. It is small and squarish - but it's ours as comrade Virag would say in the movie Witness.

Well, this may not be enough to rule the skies, but nonetheless it is a great achievement by the students from the Department of Electron Devices at BUTE. Congrats!

http://www.esa.int/SPECIALS/Education/SEMPMCI8RXG_0.html