LOT Receives Capital Injection

On October 9th, on a motion of LOT Polish Airlines, the Council of Ministers took a decision to raise the Company equity capital by 400 million PLN. The capital augmentation of the Company was achieved by means of transferring to LOT part of the shares of three Companies: up to 2.41% shares of PKO S.A., to 2.55% of KGHM Polska Mied? shares, and up to 26% of shares belonging to Impexmetal. The above decision will allow for the creation of conditions securing LOT’s availability of capital in the vital period of the nearest 6 to 12 months.

The events of the last weeks have brought about in effect a considerable drop in passenger traffic on LOT connections, though not differing very much from the tendencies in the entire airline industry. In face of the dramatic situation prevailing in aviation even the European Union states are planning far-reaching assistance for their carriers. As a result of this unfavourable coincidence of international factors, upon which LOT Polish Airlines has no influence whatsoever, returns from operational activities do not allow for the covering of the Company’s performance costs, the majority of which are of the fixed cost character.

This year’s results of LOT Polish Airlines in core performance will be worse than the one of last year. The range of operations in the year 2001 has been considerably increased, however the additionally offered passenger seats were not sold, and the Company’s negative result was not improved. The crisis on world airline markets as well as the problems facing the Swissair Group - our strategic partner - directly affect LOT’s results. We expect the nearest period to be very difficult. This opinion stems also from the fact that in air transportation the influence of the seasonal factor is really great - winter periods have always been connected with a considerable drop in the number of passengers, and this entailed a telling drop in returns.

As a result of the prevailing unfavourable tendency which appeared in the year 2001, the LOT Polish Airlines President together with the Board have taken a number of measures aimed at improving the financial standing of the Company - the most important of which is the aircraft refinancing transaction ( of the sale and lease back type). These moves create a chance of cash inflow to LOT and will allow for the continuation of the Company’s performance in the oncoming seasons. They will enable the changing of network connections as well as implementing the aims connected with the programme of deep restructuring - Programme of Changes - LOT 2001. Effects of this programme will have been visible by the Summer 2002 season.

In order to realise this programme it is indispensable to activate operations allowing for the improvement of LOT Polish Airlines’ credit reliability. The positive decision of the Polish government and the raising of the Company’s capital by the equivalent of 400 million PLN as well as embracing it completely by the State Treasury by means of importing liquid assets in the shape of shares of Stock Exchange companies will create positive room for manoeuvre enabling the creation of safeguards vis-a-vis future obligations of the Company. Greater improvement will also take place in the relation between debt and capital which will positively influence the image of the Company in the eyes of financial institutions.


Expressing deep satisfaction with the decision of the Polish government LOT Polish Airlines states that after receipt of the capital injection LOT does not intend to sell off imported assets in order not to create any turbulence on financial markets. However, the possession of such assets will, in itself, considerably influence the strengthening of the Company’s financial power and will bring closer the finalising of earlier planned transactions, including especially the key matter of refinancing LOT aircraft.