Struggling to turn around its performance under new management, national air carrier Czech Airlines (tSA), has asked for government help after posting a 773 million Kč ($35.3 million) loss in the first half of this year.

The state-owned airline says it needs a subsidy to stay afloat, tSA President Radomír Lasák said after announcing the company's midyear figures Aug. 22.

"We'd need the government to boost our share capital by about 1.5 billion to 2 billion Kč," he said.

The loss was about 20 million Kč lower than the company projected as the result of a three-year development plan aimed at bringing the company profits in 2008. But tSA's total debt reached 1.3 billion Kč — nearly half of the company's total capital of 2.7 billion Kč.

Should tSA's debt match its capital, the airline would be forced to file for bankruptcy.

Outgoing Finance Minister Bohuslav Sobotka said the government would be ready to consider further aid to the airline, which dates to the early days of commercial flying and holds significant national pride status. The state currently holds a 90 percent stake in the company.

"Should tSA ask for the increase, we'll be ready to negotiate," Sobotka said.

teská pojis?ovna insurance company, a 4 percent stakeholder in tSA, has also said it would consider beefing up its investment in tSA.

"We'll analyze that option," said teská pojis?ovna spokesman Václav Bálek.

Cash flow is not an immediate problem, thanks to bridge loans from commercial banks. But access to such loans would be in jeopardy if tSA fails to show profits within three years, Lasák said.

The turnaround is essential for the carrier, said Jan Schiesser, an economist with Atlantik FT. "Should tSA's debt grow at this pace, it would indeed jeopardize the company's future existence."

Most economists and industry analysts blame tSA's financial straits on growing fuel prices, as well as questionable moves made by the previous management.

Former tSA President Jaroslav Tvrdík — who headed the airline until January 2006 and now serves as chief adviser to outgoing tSSD Prime Minister Jiří Paroubek — is blamed for poor decision-making.

"The previous management created the grounds for the current losses," said Jan Procházka, an analyst with Cirrus.

Lasák said a key mistake his predecessors made was the purchase of 12 new planes to boost transport capacity at a time when tSA was filling only 70 percent of its seats. The move increased the fleet 45 percent.

"This raised tSA's transport capacity 59 percent, but the company was not ready for this in business terms," Lasák said when announcing his three-year development strategy in June.

Lasák said increasing efficiency is a crucial part of development and tSA intends to launch more long-distance eastbound flights, for which demand is growing and capacity is generally high. It will also reduce some medium-distance flights.

"We're analyzing costs and revenues on possible flights to China, Japan or Thailand," tSA spokeswoman Daniela Hupáková said.

Lasák also mentioned expanding and modernizing the long-distance fleet of four Airbus A-310s, adding that tSA has contacted Airbus and U.S. manufacturer Boeing for bids.

For now, the carrier has 50 aircraft and the short-distance fleet has been fully renewed. The medium-distance fleet relies on Boeing 737s, but tSA's managers have their eyes on Airbus 320s as successors. tSA will acquire 12 of these over the next two years.

Trimming staff

Rising debt pushed Lasák's team to revise tSA's previous 10-year strategy in June and introduce the three-year development plan.

The new strategy also counts on cutting tSA's 5,500-member staff 20 percent.

tSA managers have already offered severance packages to employees willing to leave voluntarily. Some 224 employees have taken the offer, and another 150 are expected to leave in coming months.

The move will cost tSA 83 million Kč in severance payments, but the company will be able to save nearly 100 million Kč in wages and other benefits.

The airline also plans to upgrade comfort for business travelers and drop some activities not directly related to transport, such as operating duty-free shops, catering and cargo services at Prague Ruzynd Airport.

tSA spent 11.5 billion Kč in the first half of 2006 — an increase of 11.3 percent year on year — while revenues grew only 8.9 percent to 10.9 billion Kč.

Lasák said the new development strategy comprises some 300 measures that should lead to financial recovery. The moves are expected to improve tSA's bottom line by 500 million Kč over the next two years.