Is There Life After the National Airline?

There used to be a time when each country had an airline and it was called the flag carrier. Some countries had more than one airline, but generally only one of them was recognized as the “flag carrier”. Those were the times when States regulated flights between their cities and more often than not, connections were based more on political considerations than economic viability. Very few of the flag carriers ever made money but that was not a problem. Taxpayers were “happy” to pitch in to cover the losses (even though they were rarely aware of their own largesse).

Then times changed, deregulation hit both the US and Europe and airlines were forced to transform themselves into real commercial operations, accountable to their shareholders. Some were successful, others less so. Icons of the industry like Sabena, Swissair, Pan Am and TWA wend bankrupt and disappeared. Consolidation swept through the industry bringing disgrace to some great airlines as they were gobbled up by their rivals (think of Delta and Northwest or, even worse, KLM being bought by Air France). In the meantime, low cost airlines flourished while traditional carriers kept reducing their costs year on year. One thing is sure: through sweat and tears, the airline industry managed to stay on its feet through the worst economic crises the world has seen since the great depression.
Interestingly, there are a few holdouts, kind of legacy “flag carriers” which still struggle along thanks to handouts from their home States which, apparently, have not caught on to the changes taking place in the world.

One of these holdouts is Malev, Hungarian Airlines. I am particularly interested in them because I started my aviation career in 1969 at Malev, who was back then also the owner of the air traffic control service in Hungary.
Malev has never been big and in the communist times they were operating like any other state enterprise. No problem with fuel guzzling Russian aircraft types, no problem with being inefficient and no problem with having roughly nine times as many people per available seat than any comparable western company. Money was not an issue…

Mind you, Malev was often praised for its excellent on-board service, on time performance was not so bad and their code-share agreements showed clearly that other airlines had no hesitation to entrust their passengers to Malev’s care.
With the collapse of the Soviet Union, Hungary also became a market economy and most state companies were privatized. This did not apply to Malev because already back then conservative elements were pushing the notion that no self-respecting country was without a national airline…
Malev became a Boeing operator but this was not enough to make them into an efficient, profitable airline. There were many reasons for this, from having far too many people to some catastrophic business decisions to the simple fact that Malev was just too small. Cash injections from the Hungarian government kept them going but it was like a dark hole: without the much needed fundamental reforms, money was flowing out as quickly as it was being pumped in.
When a socialist government came into power, they started looking for a buyer. But there were no takers! Budapest, Malev’s home base, was already served well by other carriers, Malev’s network did not have any overly valuable elements and its mountain of debt and few assets all conspired to make it a very poor bride indeed.
In the end, and for lack of a better suitor, Malev was sold to Mr. Abramovich, a Russian entrepreneur who wanted to use the airline as a tool of entry into the European Union. With his fortunes also turning sour at the worst possible time, Malev was left bleeding money and no hope of a recovery any time soon. The end was near when the Hungarian socialist government, facing upcoming elections and clearly not wanting to contend with a bankrupt airline on their hands, bought them back from the Russians.
With new cash injections Malev flew on and found themselves under the protective shadow of the new, right wing, nationalistic government which proclaimed that Malev must be saved because a country must have a national airline.

No doubt you have noticed just how often Hungary is in the news these days. The government, to mask their own dilettantism and totally flawed economic policies, nurtures a sphere of siege mentality and Hungarians are taught to blame the rest of the world for their current malaise. The cause of the problems are the banks, the multinationals (including hypermarket chains like Auchan that has brought thousands of new work places and low prices but that does not matter apparently), the IMF, everyone except themselves. Europe is worried and adverse reactions are rife, not making the situation any easier.

Mindless nationalism is extremely damaging but it can also lead to hilarious scenes. What about the big boards in the Tesco hypermarkets in Hungary announcing that the poultry they sell is “completely Hungarian”… Or the store in the gallery of a Cora supermarket proudly proclaiming that they sell nothing but Hungarian products. Yeh… like T-shirts with a Disney motif on them.

But why is this nationalism relevant for Malev?
Well, a while ago one of the right wing reps in parliament pronounced again that Malev is a strategic asset and must be saved. No country can be without a national airline. Initially they kept pumping money into the ailing company but with the economy collapsing, funds seem to have evaporated and 2012 looks bleak indeed. Late last year the then Minister of Development Fellegi hinted that they were in advanced stages of discussions with investors interested in Malev, investors who did not have as the only aim making a profit. This is exciting… nationalist investors? Anyway, those guys (or gals) must know something that the likes of Lufthansa does not. LH bought ailing Austrian Airlines while simply stepping over poor Malev.
Good… but is this bad for Malev? Yes.
Had Malev been allowed to go the way of other airlines who had to face the full force of the markets, they would either have been able to transform themselves into an efficient company, merged with somebody else or disappeared long ago. All of the options would have caused pain and a lot of people would have seen their jobs disappear but this would have happened well before the worst of the economic crisis and those who lost their jobs would have had a much better chance of being able to start over. With a bit of luck, Hungary would now have a strong airline based in Budapest… Personally I do not believe in the long term viability of investors who do not care about profit. That kind of thing was called socialism and with all the benefits that system had, economically it was a total disaster. Giving away Malev to such people is but a stay of the execution.
Of course it is always good to have a strong aviation industry in a country. Building aircraft, repairing them, flying them brings wealth, opportunities for young engineers and pilots and also, why deny it, a certain prestige. But having an aviation industry in a country is not the same as insisting on having a national airline.
One is sound business policy, the other is mindless nationalism. Like the all-Hungarian poultry.