The final sale of Balkan Airlines seems fraught with difficulty and contradiction

Published: 7/28/1999

The sale of Balkan Airlines to Israeli group Zeevi Holdings on the evening of June 30th was a hectic process according to Zahari Zhelyazkov of the Privatisation Agency with officials as the PA attempted to reconcile the English and the Bulgarian versions of the contract. He also admitted that they lacked the original of the Israeli company's registration. The goal was to meet the deadline, June 30, when the airline company and another 40 companies under the law on financial recovery were to be either sold or liquidated. If the sale had fallen through the national carrier would have been liquidated. The price of the sale is symbolic and the state solely seeks to recover some of the funding that it has advanced the carrier. The purchasing company is required only in Zhelyazkov's words, - to earn money without being slave to any restrictions." The order to sell the airline is consider by some sources to read more like the appointment of the foreign company as liquidator rather than a deal involving the sale of a going concern. The route to sell Balkan Airlines has been a torturous one and not without controversy (www.concise.org 12th April 1999), with the state making repeated attempts to achieve a sale and then withdrawing at the last moment. The latest bid saw two of the bidders excluded because of wrong paper work and failure to lodge the appropriate deposit by the stated deadline in May. The most influential members of the PA's supervisory board - its head Asen Dyulgerov, the Councilor of Deputy Prime Minister Alexander Bozhkov - Mladen Georgiev and the head of the Structural Reform Department at the government, Dimitar Bachvarov, were against a deal with Zeevi. In the end, however, the supervisory board surprisingly approved the sale. The buyer is a consortium between two Israeli companies - Zeevi Holdings and the private airline company Arkia. The price of the deal is $150,000. The buyer is to invest $100 million and to guarantee the assumption of $30 million of the company's debts. The reported sale price contrasts with the KPMG valuation at the end of 1998, which reportedly valued 75 percent of the airline, at $1.5 - $2 million. The level of required investment also seems low, previous statements made by transport minister Wilhelm Kraus, said Balkan Airlines needs at least $200 million. The previously stated debt figures were also considerably higher than the $30 million announced. Part of the airline's debts to the state and state-owned companies are expected to be written off by Government decree and the buyer must make a contingent liability of $6 million to cover debts that may emerge in the future. To date the representative of Zeevi and Arkia have not revealed their plans for the airline, but the issue of flights to Arab countries is likely to become an issue. According to Shlomo Hanael of Arkia "Where we can make profit we will make it,' This has only reinforced the opinion from local commentators that the new owners may liquidate the airline take a profit after paying the various penalties built into the contract, as the belief is that the airline's assets are worth twice the possible penalties. Local commentators have also asked the question who are Zeevi Holdings? According to the PA Zeevi Holding is a holding company with interests in the energy sector, construction and design, in information technologies, in logistics, in trade; it manages two oil refineries, trade centers, airports. It also owns a TV channel and a radio station in Israel. In Bulgaria, they have also declared their intentions to take part in the broadening the cargo terminal of Sofia airport - and according to Philip Mustakov, director of the airline, to get a licence for servicing Sofia airport as well as the other big airports in the country. Well-informed sources said that Zahari Zhelyazkov himself was against the deal and preferred another bidder - the Russian Aviation Consortium. Reportedly, Zhelyazkov even tried to find political support against the Israeli buyer. Supposedly he said: "What business programme do you expect, if you only see their bid..."Agency sources said that the main supporter of Zeevi was Atanaska Bozova, head of the department in charge of foreign consultants, who exerts a strong influence over Zahari Zhelyazkov. To Concise it seems strange that a deal with such little political support appears to have gone through on what seems to be accepted as less than generous terms. The machinations of the Bulgarian airline scene however, will no doubt reveal yet more turns over the next few months that may cast more light on what appears to have been a series of dark discussions and agreements.

Article ID: 709