Spanner In The Works: Spanair's collapse

In August 2008, following the crash of flight JK5022 at Madrid airport and the death of 155 on board, I asked whether Spanair could recover or whether the flames of Barajas would come to engulf it.

At the time of the crash Spanair was in a dire financial position. Its major shareholder, Scandinavian Airlines, which had founded the airline together with the travel division of the now bust Grupo Marsans, was desperate to find a buyer. It eventually did. A consortium from Catalonia handed over one euro.

The problems at Spanair forced the closure of its operations at Palma airport, leaving behind only call-centre staff and some ground crew, now out of a job. Everything was shifted to Barcelona, and the newly reconstituted airline hoped for better days.

The better days didn't materialise, however. A year ago, almost to the day of the announcement on Friday that the airline would be suspending activities and filing for bankruptcy protection, its future was placed on notice, owing to its financial situation.

The sale of Spanair, though for a nominal amount and for which Scandinavian Airlines retained a minority shareholding, was ill-conceived. The Catalonian government and Barcelona's El Prat airport were keen for the kudos of an airline which had Barcelona as an international hub, and so public money, along with investment from private sources was put into the airline. It wasn't, though, totally clear who owned what. Qatar Airways, which had been looked upon as a white knight, thought better about pumping money into the mish-mash of a corporation (at one stage Qatar Airways was set to become a 49% shareholder), and it was this decision which ultimately brought Spanair to its knees and to the suspension of activities.

The Qatari refusal to inject funds into the airline was the nail in the coffin, the lid of which had been closing because of the withdrawal of public funds. Spanair had been massively reliant on money from the Catalonian government and Barcelona town hall which had revelled in Spanair being the airline of the flag of the city. Reality finally caught up with the Catalonian public authorities, and Spanair, without a white knight or public finance, was doomed.

In truth Spanair has been a bankruptcy disaster waiting to happen. Economic crisis certainly didn't help, but its losses were unsustainable - 116 million euros in 2010, 186 million in 2009. Its main shareholder, Iniciativas Empresarials Aeronàutiques (IEASA), the mish-mash of various public and private organisations which held 85.6% of the airline, finally accepted that a combination of economic crisis, the rise in the price of fuel, competition and pure lack of finance, meant that the shortlived revival of Spanair, following the sale by Scandinavian Airlines, had been shorter than might have been wished.

The reliance on public money has been the thing that has really killed Spanair. Its reconstitution was always, especially at the time that it was being pieced together in 2009, a highly risky proposition, given the depth of the economic crisis. Moreover, the huge amounts of public money were distinctly questionable in a way other than their having been wise use of such finance. Ryanair was one airline to argue that this was a form of illegal subsidy. This was denied on the grounds that payments were investments and not subsidies, but the distinction seemed to be one of semantics. Qatar Airways would have been uncomfortably aware of potential retrospective action by Brussels biting them later on.

Five years of uncertainty have now come to an end. These have been five years during which Marsans, before it faced its own financial death, had at one time sought to take over Spanair completely. In a way it would have been better if it had. "Spanner", as it was sometimes sarcastically referred to, might then have had to close earlier than it has. Arguably, it should have been allowed to go to the wall in 2008 anyway. Instead, it was picked up as partly a vanity project which has cost taxpayers in Catalonia a small fortune.

It is instructive that the Spanish minister for industry and tourism, José Manuel Soria, while lamenting the closure of Spanair, has said that it should also cause there to be "very serious reflection" as to public funds to airlines, be they investments or subsidies. Soria is dead against subsidies, and however the funds to Spanair were described, they still amounted to subsidies.

In the end, it wasn't the flames of Barajas that engulfed Spanair but the absence of an adequate financial base. It has spent the past three years on borrowed time, and now the time has run out.


Any comments to andrew@thealcudiaguide.com please.