York Capital makes rescue bid for SkyEurope

By Kevin Done

York Capital Management, the US-based hedge fund, has offered to rescue SkyEurope, the struggling central European low cost airline, which has been brought close to collapse by several years of heavy losses.

The airline has been regarded by analysts as one of the European carriers most at risk in the current wave of aviation restructuring, which has seen the recent collapses of several groups including XL Airways, Zoom Airlines and Silverjet in the UK and Spain's Futura International Airways.

The rescue offer from York is the only concrete proposal received by Rothschild, the UK investment bank, which was appointed last month to seek new sources of finance.

York is already the biggest shareholder in SkyEurope Holding with a stake of 29.9 per cent and is also the group's leading creditor. It has proposed acquiring all the shares in SkyEurope Airlines, the operating company, for "a nominal price."

SkyEurope Holding said Rothschild had received "several expressions of interest but only one concrete proposal."

It said it would continue to look for alternative investors, which might put "a higher value" on the business but had decided to enter into negotiations with York.

York had offered to take over SkyEurope Airlines' liabilities and certain liabilities of the holding company for a nominal amount, it said, and would make a "significant capital injection" to meet the carrier's liquidity needs once the deal had been completed.

SkyEurope was founded as a Slovak carrier in late 2001 in Bratislava and was floated in an initial public offering in Vienna and Warsaw in 2005.

It carried 3.8m passengers in the 12 months to the end of August and has its main bases in Vienna, Prague and Bratislava, where it is a low fare rival to the established legacy carriers Austrian Airlines and CSA Czech Airlines.

Several years of mounting losses have threatened the group's survival, however. York has already made two loans to try to keep the airline afloat including a four-year €15m financing facility granted at the end of 2007, secured against all SkyEurope Holding's shares in SkyEurope Airlines, and a €10m bridging loan made last month.

The airline has been forced to restructure its operations in order to try to cut its costs and has withdrawn from earlier bases established in Poland, at Krakow and in Hungary in Budapest. It has withdrawn entirely from the Polish market.

After simplifying its operations and disposing of older aircraft, it has one of the youngest fleets in Europe with 15 Boeing 737-700s and a further 10 on order for delivery up to 2014.

It has been forced to slow drastically its growth, however, and has succeeded in re-delivering two jets to Gecas, its main lessor, as part of a programme to cut its winter capacity.

In its most recent financial results published in late August for the third quarter to the end of June, SkyEurope said "material uncertainties" existed about its ability "to continue as a going concern" given its historical losses, negative cash flows, and problems in complying with the convenants in its Gecas operating leases.

It said its cash and cash equivalents had dropped to only €2.7m at the end of June, partly as a result of its credit card acquirer delaying the settlement of the group's online ticket sales.

It made a net loss of €45.4m on a turnover of €168.4m in the nine months to the end of June on a network flying 76 routes to 41 destinations in 19 countries.

The SkyEurope Holding share price, which peaked at €6.19 in April 2006 fell to a low of 24 cents last week. It declined on Wednesday by one cent or 2.9 per cent to 34 cents.