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PRAGUE - Korean Air to buy a stake in Czech Airlines

(This article expired 19.03.2014.)

The Czech government has approved Korean Air bid for a 44% stake in the state-owned carrier Czech Airlines (ČSA) on March 13, 2013. Korean Air has offered to pay 2.64 million euros ($ 3.44 million) for Czech Airlines´s stake and to use its base at Václav Havel Airport at Prague as the European hub for the Korean carrier. The contract between Czech Airlines and Korean Air is to be signed in the second week of April.

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Created exactly 90 years ago, ČSA (originally Československé státní aerolinie - Czechoslovak State Airlines) are now the 4th oldest airline in the world still operating (the oldest being Dutch flag carrier KLM which was established in 1919). It has a long and successful history, it became the third of the world's airlines to fly jet services, with Tupolev Tu-104A, the world´s first successful jet airliner, in 1957. Five years later, ČSA´s first translantic service started with a flight between Prague and Havana, Cuba. From the 1960s until mid-1990s ČSA (renamed Czech Airlines after the split of Czechoslovakia), operated a wide range of intercontinental flights, to such cities as Hanoi, Singapore, Kuala Lumpur and Jakarta (the most Eastbound ones), Dakar, Freetown and Lagos (the longest routes on African continent), flights to the US and Canada and numerous destinations in the Middle East and North Africa. In the last decade the number of destinations was cut down and Czech Airlines now operate flights to some 50 destinations, with wide network to most major European cities with an emphasis given to flights to numerous business and tourist destinations in wider Central Europe and countries of former Soviet Union.

Younger, but significantly bigger and stronger Korean Air was created in 1962 and became a part of Hanjin group at the end of the 1960s, but with its fleet of 150+ aircrafts and network covering all five continents, it is one of the biggest airlines in the world. Korean Air's international passenger division and related subsidiary cargo division together serve some 130 cities in 45 countries from Auckland to Irkutsk, from Nairobi to Rio de Janeiro, from New York to destinations in Europe. Korean Air flies also to Czech capital since 2004 and Prague became slowly a sort of a Korean travellers´ hub to smaller destinations in Europe. Route between Incheon and Prague which decade ago was only thrice weekly Korean Air´s small airbus operation, is as of June 2013 to become one of the most travelled destination in Europe with six direct flights a week (of which 4 will be operated by Korean Air and 2 by Czech Airlines) offering Korean businesses and tourists many transfer options to numerous cities in Europe, As The Korea Herald noted a few days ago, the "Korean Air´s acquisition of a stake in Czech Airlines appers to be a bigger deal than expected". Both flag carriers combined will have 0.8 percent of global market, which "would make them one of the top 21 airlines" of the world, noted Lee Ji-yoon. Korean Air could expect to benefit from the network expansion by sharing European routes and using smaller, but effective and friendly Václav Havel Airport Prague. Such a step is a logical move, according to Financial Times, as "Central and Eastern Europe has become attractive for non-European airlines looking for regional hubs as a way of gaining a toehold in the European market". Both Czech Airlines and its main airport will also benefit from the deal, as the sale would likely help the loss-making Czech Airlines get back on firm footing by allowing it to feed more Asia-bound traffic through Korean Air, analysts said. Both sides will also work on further development of Prague airport.

As of now, the Czech government has a 95.7% stake in Czech Airlines, with the remainder of shares held by the city of Prague, Czech capital, city of Bratislava, the capital of Slovakia, and Czech insurer Česká pojišťovna. The Czech government is selling only a minority stake in Czech Airlines to retain the carrier's European status, which is essential for airlines to benefit from the European Union open-sky policies governing air traffic. The Korean Air is also expected to assume a management control and will gain seat in the three-member supervisory board of Czech Airlines. The shareholder contract will also give Korean Air the right to take part in decision-making on significant issues related to Czech Airlines, such as capital hikes or cuts and profit distribution. Korean Air will also gain the option to buy the remaining Czech Airlines shares as "Korean Air has reserved the option to buy all remaining shares in a minority stake," said Czech Airlines CEO Miroslav Dvořák to Czech press. Besides this, Korean Air would like to buy the remaining shares under the condition that the EU abolishes restrictions on acquisition of national air carriers in the EU by airlines from outside the EU mentioned international press.

The sale of Czech Airlines has yielded another tangible benefit for Czech Airlines and related companies as Korean Air has already moved its client call centre to Prague from the Irish capital city Dublin, a few weeks ago. Phone calls from Korean Air's European clients are handled by company CSA Services, a former Czech Airlines´ subsidiary.

This recent development once more shows the intensity of Czech-Korean relations. Volume of trade doubled in last five years and reached $ 3.7 billion in 2012, with Czech imports to the Republic of Korea reaching almost $ 580 million and Korean imports to the Czech Republic reached $ 3.1 billion (according to both countries´ respective statistics). In 2009 Hyundai Motor Czech in Nošovice was officially opened with its production capacity of 300,000 cars/year, in 2010 Doosan Heavy acquired Škoda Power, leading Czech manufacturer of turbines based in Pilsen, and a few months ago, Hanwha expanded last year its production plastics capacity in North Moravia, and GS Caltex opened its very first European plant in city of Karviná. With number of Korean tourists coming to the Czech Republic reached 130,000 in 2012 and a number of Czech-Korean cultural exchanges is on a steep rise in the last years, Czech government has approved an establishment of Czech Centre in Seoul to promote Czech culture and art and bilateral cultural cooperationin, the Centre is to be opened in April, to be followed later this year with an representative office of another Czech state agency, Czech Tourism.