Czech Airlines (CSA) filed today for reorganization according to the Insolvency Act in the Municipal Court of Prague.
The application for reorganization was filed due to the termination of the extraordinary moratorium and after exhausting all possible solutions to resolve the challenging financial situation caused by the global crisis in aviation due to the COVID-19 pandemic. The aim of the reorganization process is to save the company and to select the best possible solution for creditors.
Prior to COVID-19, CSA was a profitable company. As a consequence of the pandemic and the related extraordinary travel restrictions implemented by governments globally, CSA´s payment reputation was challenged significantly. Despite recommendations of the European Commission and the International Air Transport Association (IATA), CSA did not receive any financial support from the government as opposed to its direct competitors having received such support from their respective governments pursuant to EC recommendation and, thus, the airline is confronted with unequal and unfair competition.
The Czech state refused to participate in the rescue of CSA being the fifth oldest airline in the world, this despite the fact that the shareholders declared their readiness for financial support to CSA.
Since 28 August 2020, Czech Airlines and its parent company Smartwings have been requesting the Czech government to implement the “COVID-air transport” compensation program similarly to other government schemes, such as COVID - BUS, COVID - accommodation or COVID – tourism. CSA and Smartwings have further requested the Czech government to provide a financial support to cover 7,198 canceled flights during the state of emergency in the period between14 March 2020 and 24 May 2020 during which CSA was forced to suspend its operation. The justification, as per which financial support or launching any compensation scheme designed for a single company is not possible, lacks logic and is in a direct contradiction to support provided to airlines in other states.
The parent company Smartwings is addressing the current situation under the regime of regular moratorium with the support of its creditors. The operation of both companies continues uninterruptedly and CSA and Smartwings operate all flights as scheduled as well as both airlines resume the operation on further routes subject to the epidemiological situation and travel restrictions imposed by the relevant countries.
Both companies are planning to address the situation within a common concern solution which will lead to their rescue and is more favorable for the creditors. The proposed reorganization is the last option to save the company, unless the approach of the Czech government is reconsidered.
The airline industry is one of the most adversely impacted industries by the COVID-19 pandemic outbreak. Due to the coronavirus crisis, CSA and Smartwings had to terminate more than 600 employee contracts and implemented several restructuring measures.
CSA was supposed to deploy the operation of the most modern and efficient aircraft, Airbus new generation, by the end of 2020. The company’s strategy assumed the expansion of destinations and route network, including the long-haul operation.
As a consequence of the state of emergency declared and the extraordinary measures implemented due to the new coronavirus spread, CSA has suffered a loss of CZK 1.57 billion and an unprecedented drop in the company´s revenues to about 20% of the previous year.
