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Croatia Airlines Gets Speedy Government Aid before EU Entry

National carrier Croatia Airlines has just received a capital boost of EUR 106 million from the local government. The funds injection has been approved just before the Easter European’s country would join the European Union as a means to avoid strict competition regulations. The funds will be given to Croatia Airlines as a capital increase supported by the government.

The main goal of this investment is to power a turnaround plan which would help the national carrier reach a break-even point and become profitable in 2012. In order to achieve this goal, Croatia Airlines plans to gradually downsize, cutting 10% of its staff over the next two years.

The government funds are to be transferred in two installments, the first one covering Croatia Airline’s debts of 82.6 million euros and investing another 19.8 million in making the carrier more competitive. The net loss of Croatia Airlines in the first nine months of 2012 is of 1.4 million euros, a significant improvement from the 4.2 million loss reported for the same period of 2011.

From January to September 2012, Croatia Airlines carried over 1..5 million passengers, a number up 3.5% compared to 2011 results. The average cabin load factor also went up by three points, reaching 70.3%.

The Croatian national carrier will soon be facing strong competition from airlines such as British Airways on its London route and Qatar Airways for its passengers using Frankfurt and Munich as transfer hubs. To stay ahead of its competitors, Croatia Airlines has announced new routes for the 2013 summer season and plans to increase the number of flights to  “European capital” Brussels from six to eleven each week.

The government has moved as quickly as possible to approve the capital boost before Croatia became the 28th member state of the European Union on July 1, 2013. At that time, they would have been forced to follow EU regulations which require state aid to be assessed as an investment and it is only approved if assessors reach the conclusion that a private investor would match such an investment.