Hungary's Malev Airline Ceases Operations

Associated Press

Hungary's national carrier Malev ceased operations and grounded all its flights Friday in response to an "unsustainable" financial situation.

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Malev, which is a member of the Oneworld airline alliance that also includes American Airlines and British Airways, has debts of around 60 billion forints ($270 million) and has been unable to find new investors.

The airline, which was established the year after the end of World War II, stopped all its flights as of 0500 GMT on Friday (midnight Thursday EST).

Managing Director Lorant Limburger said that in the past days partner airlines had suddenly lost trust in Malevand had begun demanding advance payments for their services.

"This accelerated the cash outflow to such an extent, that by today the airline's situation has become unsustainable," Limburger said in a statement announcing the shutdown. "We apologize to all our passengers."

Prime Minister Viktor Orban said on state radio that two Malev planes were still abroad—one in Tel Aviv, the other in Ireland. Those planes were not allowed to take off because of the airline's accumulated debts, Orban said. Orban added that Malev faced the risk of having more of its 22 planes seized by creditors if it were to continue operations.

Last month, the European Union ordered Malev to repay nearly $400 million inillegal state subsidiesreceived between 2007 and 2010. In 2010, Malev's losses reached $110 million.

"It is a painful thing. We tried to keep Malev on track as long as we could, but this is as far as we could go," Orban said, adding that he was still hopeful that new investors could be found despite Europe's ongoing debt crisis.

"I believe a restart is not impossible," he said.

Earlier this week, Malev began operating under what amounted to bankruptcy protection and a receiver was appointedby the government to oversee the airline.

Malev was founded in 1946 and has 2,600 employees. After several failed privatization efforts over the past 20 years, the state now owns 95 percent of the company. A deal to sell a stake in Malev to China's Hainan Airlines fell through last year.