Czech Airline’s general meeting has given its final approval to the sale of the airline’s subsidiary Air Cargo Terminal (ACT).  CSA’s management will conclude the contract for the sale of the 100% ownership interest with the winner of the tendering procedure, Central European Handling, which offered the highest bid in an electronic auction.  The price exceeds both the accounting value of the ownership interest, and the independent market valuation.

The subsidiary ACT is the operator of the modern Cargo Terminal at Prague-Ruzyn? Airport.  It also holds the required licences for providing cargo handling and other activities related to the handling and storage of goods.

The transaction will have a positive effect on CSA’s financial results, and a positive impact on its cash flow.  This will help the Airline to bridge the expected financially difficult period in early 2008, and to rid itself of past debts for good, which is a prerequisite for the airline’s further successful development.

The divestment and focus of the Airline on its main line of business is a part of the CSA OK 2006-2008 recuperative strategy, approved by the airline’s general meeting in June 2006, as a three-year concept for the rescue, stabilisation, and development of the Airline.  Cargo was selected as a suitable candidate for divestment, primarily because the operation of a cargo terminal is not CSA’s main line of business.  The Cargo Terminal was built in 2003 and has never been utilised to its full capacity.  Furthermore, in CSA’s present situation, having carried a great burden from the past, in the form of an accumulated loss, and with limited financial resources for development activities, it was not able to appreciate its investment into the Cargo Terminal on its own, for example by using it more efficiently.

CSA does not presently operate on the cargo carriage market and is not in the position to enter it, as it does not posses the requisite competitive advantages, such as a connection to producers and the related ground connections.  Nor is CSA contemplating the purchase and operation of its own cargo aircraft.  No other airline of CSA’s size owns or operates a cargo terminal of a similar size without also having its own fleet of cargo aircraft.

The carriage of goods and post in CSA aircraft continues
CSA will however continue to provide cargo carriage in its own aircraft.  The separate business unit, CSA Cargo, will continue to engage in carrying shipments and post on CSA’s flights.  The handling will be provided to Czech Airlines by ACT, on the basis of a long-term contract.

A transparent tendering procedure
CSA approached the prospective buyers of the Cargo Terminal through its investment advisor, CAIB, at the end of last October.  Bids for the purchase of the Cargo Terminal and the related business activities in cargo handling were submitted by 101 potential strategic investors, comprising companies from the cargo handling business as well as selected financial investors.

The initial address to investors was followed by the preparation of an information memorandum, which was requested by 27 investors.  CSA received preliminary offers at the end of January 2007 from nine investors.  A narrower selection of companies followed, of those that exhibited sufficient financial strength and documented experience with cargo handling.  They were permitted to carry out due diligence.  Three bidders submitted a binding offer.

In order to maximise the yield, an electronic auction was announced, in which the bidders had the opportunity to increase the price that they had originally offered.  Three entities participated in the auction.  The highest bid won.

The settlement itself and the transfer of shares should occur this October, in line with the transaction documentation.
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