More than two years after the last Malév airplane took off from the Budapest Airport runway we are finally are closer to understand why the airline was forced to discontinue. Among the documents acquired by Hungarian Civil Liberties Union from the Ministry of National Development as a result of a court decision, we can find all the background material of talks between the Hungarian government and its Chinese partners, financial reports about Malév, liquidation documentations and an English-language statement of intent in which the ministry and Chinese NHA Airlines company agree upon founding a “new Malév.”

All the materials are worth reviewing, as among other things, they includes a plan by Sándor Demján and the Chinese that was never realized, a lengthy summary of Malév’s situation in 2011, and documents telling how the ministry was able to negotiate lower contract prices with DLA Piper legal services, as a result of which a legal apprentice worked for Malév for a mere EUR 140 per hour.

Preparing for liquidation

Documents revealed that already in February 2011 DLA Piper had prepared a study about how Malév could be liquidated without further pain and damage and in silence. If, for example, Malév had requested its own liquidation procedure, then it would have become public “before its time.” However, if a “friendly” debtor was the initiator of such a process, than it would neither have required general assembly decision (these kind of decisions are always made public) nor advance notice to the trade unions.

This means that Malév aimed to keep the facts of a liquidation process in complete secrecy until the last possible moment.

DLA Piper also recommended several amendments to the Liquidation Act to the Ministry of National Development so that debtors would have much less influence over the liquidation process and that the government could unilaterally appoint a liquidating company regardless of whether it was officially registered as such. The latter happened on 30 January 2012, five days before the official bankruptcy, when the government hastily classified Malév as “strategically important financial body.”

Delays with the deadlines

All along, the plan was to keep Malév alive with the help of public money to the point when they would be able to cut a deal with the investors to create a new airline company, even if the old one, steeped in debt, went bankrupt. In December 2009 the Bajnai-government held talks in Beijing with local partners interested in investing in the new company.

In February 2011, in a letter addressed to Joaquín Almunia, then EU Commissioner responsible for competition legislation, Tamás Fellegi, then national development minister of the Fidesz-government, wrote that they had identified a possible investor for Malév.

He pointed out, however, that in case an agreement cannot be reached byApril 2011, public funds to the airlines would be discontinued, and a “conventional liquidation process” initiated. In the case of agreement, however, a “guided liquidation process” would take effect, meaning that they would continue to fund Malév until most of the wealth of the company had been liquidated. But even in that case funding would only have been continued until October 2011. As it turns out, the government continued to use taxpayer money to fund the company until January 2012.

According to the papers, an agreement was finally reached in May 2011, when the ministry, the Chinese HNA Group which operates Hainan Airlines, and Sándor Demján’s Hungarian Capital Company (Magyar Tőketársaság – MTT) signed a statement of intent to found a new airline company.

In the “New Malév” the state would have held 25 percent of the shares, and MTT-HNA Group would have owned the remaining 75%, and a financial plan was scheduled to be presented by June 15. 2011. The new company was supposed to be operational by December 31 of that year, precisely because by then the old Malév was already in a terrible financial shape. This means that an investment agreement would had to have been signed by mid-June.

This obviously did not work out, as even according to the documents, Demján and HNA were still at the discussion level with the ministry in August, and until the prospective launch of the new Malév, now referred to as “Veritas”, the state was continuously providing a monthly sum of 7-8 million euros (at present rate this is approximately 2-2,5 billion Hungarian forints) to the old company to keep it operating.

It was since revealed that these discussions were conveniently going on during the autumn of that year between the government and Demján’s group. However, that was the time when they finally received notification from Brussels warning them that there should not be state ownership in the new company’s structure, at least in the beginning.

This is where the talks probably broke down. In one of the materials from August DLA Piper already suggests to the Ministry of National Development that it threaten the investors, basically saying that

if the project does not go down as expected from that point forward, then they will “reconsider” whether they should sustain the airlines at all.

In recently published documents, this is where the story ends. However, following this incident the project started to fail quite soon: an agreement with the investors was virtually impossible, it could also be that their intentions to found a new company were not really serious. In the meantime, Tamás Fellegi, then minister of national development, who was coordinating the talks, resigned his position. The reason he offered then was that he will be responsible for talks with the IMF, but it could well be that he left the sinking ship of the ministry as a result of the total failure with Malév.

Translation of Dénes Csurgó’s article “Hungarian airlines Malév went bankrupt due to time wasted” (“Eltökölték az időt, becsődölt a Malév“) published by Hungarian daily news site index.hu on February 25, 2015.

Source: Budapest Sentinel