August 26, 2020
Members of Smartwings Group including Smartwings, a.s. (Smartwings) and České aerolinie, a.s. (Czech Airlines, CSA) today filed request to the Municipal Court in Prague to declare an extraordinary moratorium under the so-called Lex COVID legislation. This new law introduced the moratorium as a tool to alleviate the impact of the SARS CoV-2 coronavirus pandemic. The need to apply for the moratorium is solely driven by the impacts of the pandemic that has caused the largest crisis in aviation history. Both companies had been profitable before the pandemic broke out and they are expected to return to profitability once it subsides. The extraordinary moratorium will provide protection to both Smartwings and CSA at a time when their revenues have reduced significantly. Both companies will also obtain time to develop and negotiate a long-term sustainable financing solution that would benefit all concerned parties, i.e., creditors, employees, and passengers.
“Smartwings and CSA continue with their standard operations. Both companies operate all scheduled flights and have been resuming additional routes as the epidemiological situation and travel restrictions in the respective destinations allow. Smartwings Group, like other air carriers, has implemented restructuring measures to achieve operational efficiencies and savings. The extraordinary moratorium is only a temporary measure that grants Smartwings and CSA the time they need to achieve their financial stability in cooperation with financing banks, aircraft lessors and other creditors. We believe that the steps we are taking today will help us to successfully overcome this unprecedented crisis,” says Jiří Šimáně, Board Chairman, Smartwings.
Due to the state of emergency declared by the Czech government and the adoption of special measures in response to the coronavirus breakout, Smartwings Group recorded a year-on-year decrease in air traffic volume of 95 percent between April and June 2020 and more than 80 percent in July and August. Since the onset of the epidemic, Smartwings and CSA have implemented a cost saving program and adopted every possible measure to mitigate the negative financial impact of the coronavirus crisis. Air carriers around the globe, including the largest players (such as Lufthansa, British Airways, Air France, KLM, easyJet, Swiss, Austrian Airlines, Brussels Airlines, Emirates, American Airlines, etc.), have adopted similar measures. While many airlines have already benefited from the support from their national governments (e.g. in the form of capital injection or provision of state-guaranteed loans), Smartwings and CSA have not received any state-support to date.
A support program for large businesses active in the field of transportation and tourism was not implemented in the Czech Republic in the first months of the coronavirus crisis. The COVID Plus program aimed at such businesses that have been affected by the pandemic was launched by Export Guarantee and Insurance Corporation (EGAP) only in the second half of July after notifying the European Commission. Smartwings and CSA are taking steps now to benefit from this program.
“The loan guarantee application process is a complicated and lengthy procedure requiring the agreement of multiple parties. This is one of the primary reasons why Smartwings Group has resorted to the extraordinary moratorium. We are exploring all potential financing options to ensure business continuity of both companies. Throughout the process, we will be cooperating closely with our finance providers and other stakeholders. In this context, we have also mandated an international advisor EY, which has extensive experience in the field of restructuring and finance raising as well as the necessary aviation industry expertise,” adds Jiří Šimáně.
Smartwings currently operates flights from Prague to 25 destinations, from Brno to 9 destinations and from Ostrava to 2 destinations. CSA operates flights to 12 destinations and is planning to resume flights to Barcelona, Madrid, Budapest, Goteborg, Bucharest, Brussels, Warsaw, and Milan in September. Other routes are expected to be resumed depending on the coronavirus situation in the respective countries and applicable travel restrictions.
Smartwings was a successful business before the coronavirus crisis, reporting earnings before tax in the amount of CZK 183 million last year despite problems caused by a global grounding of Boeing 737 MAX aircraft. CSA reported earnings before tax in the amount of CZK 79.2 million in 2019 and has been profitable since Smartwings assumed partial management responsibility. Smartwings Group reported revenues of CZK 28 billion in 2019. Smartwings and CSA transported more than 9.6 million passengers in total last year.