German airline sues Polish state aviation group for abandoned takeover by LOT

German airline Condor is suing the state-owned Polish Aviation Group (PGL) for €55.8 million after PGL withdrew from an agreement for Poland’s flag carrier, LOT, to buy its rival earlier this year.

The Polish company, however, maintains that Condor “breached obligations resulting from the investment agreement” and that PGL’s decision to pull out therefore remains “both effective and legitimate”.

In January, LOT, which belongs to PGL, announced that it would purchase Condor. The German airline had been struggling after its previous owner, the British travel group Thomas Cook, went into administration in 2019.

According to PGL’s financial report, the companies had “planned to complete the activities required by German law in the bankruptcy procedure” by the end of March, reports Puls Biznesu.

The deal was hailed at the time by Poland’s prime minister, Mateusz Morawiecki, as “proof of the strength of the Polish economy”. It “reverses the trend” of western firms buying Polish ones, he declared.

“We are targeting foreign firms and are able to afford them,” said Morawiecki. “This is a very brave but also prudent move by LOT.”

In April, however, as the coronavirus pandemic worsened in Europe and the aviation industry struggled in particular, LOT withdrew from the takeover. At the time, the companies said they were negotiating terms of exit, reported the Financial Times.

In its financial statement, PGL justified stepping away from the deal by saying that “the COVID-19 crisis and the failure to meet certain conditions of the investment agreement” had caused a “collapse of the basis of the contract”.

According to PGL, the company was informed of Condor’s claims on July 31 and received the lawsuit on September 3, reports Puls Biznesu.

“After the initial analysis of the lawsuit, in the opinion of the management board there are no grounds to change the position regarding the effectiveness of the company’s withdrawal from the investment agreement”, wrote PGL. It added that “the lawsuit is an unjustified attempt to obtain undue compensation”.

The union of the two airlines would have created a regional player of 20 million customers and 140 aircraft. LOT had pledged to pay back Condor’s bridging loan of €380 million received from the German authorities as part of a protection scheme, reported the Financial Times.

LOT itself is likely to dip into the red this year. Poland was one of the first countries in Europe to suspend flights due to the pandemic, taking the decision in mid-March. Even once connections reopened, many Poles opted for domestic holidays and foreign visitor numbers were down significantly.

In early October, LOT put in a request for 4.5 billion zloty (€1 billion) of public financing to help cover losses incurred during the coronavirus pandemic. The European Commission will have to approve the relief package.

The collapse of the Condor deal was also a setback for the Polish government’s ambitions to become a major aviation player. Expanding the operations of flag carrier LOT is a centrepiece of those plans.

Yet despite the industry’s struggles, the government is pushing ahead with the construction of a new “mega-airport” in central Poland – the Solidarity Transport Hub (CPK) – which will also include railway interchanges and road connections.

The airport, to be located between Warsaw and Łódź, is expected to initially serve 45 million passengers a year, which would put it in a similar league to London Gatwick and Munich. The aim is for it to eventually expand to 100 million passengers a year. On 2019’s figures, that would put it in the top three busiest airports in the world.

Last month, the government approved financing of 12.8 billion zloty (€2.84 billion) for the first stage of the project, which will run until 2023. The opening of the airport is pencilled in for 2027.

Main image credit: PxFuel

Maria Wilczek

Maria Wilczek is deputy editor of Notes from Poland. She is a regular writer for The Times, The Economist and Al Jazeera English, and has also featured in Foreign Policy, Politico Europe, The Spectator and Gazeta Wyborcza.