Malév Plc History

Address:

1051 Budapest, Roosevelt tér 2.
Hungary

Telephone: (1) 266 9033, 267 2911
Fax: (1) 266 2685

Public Company
Incorporated: 1946 as Maszovlet
Employees: 4,000
Sales: HUF44 billion (1995)
SICs: 4512 Air Transportation, Scheduled

Company Perspectives:

Malév is the national carrier of the Republic of Hungary. It is a dynamically developing air transport and service company with a decisive role to play in Central Europe. Building on its extensive network and relationships the airline links--via the Budapest centre--many European cities and other regions. By flexibly realizing opportunities and with positive management policies Malév operates profitably, providing a challenging and motivating work environment and quality standard of living to its employees. Malév shapes its environment through its positive image which also represents national values. Malév continues to build on its creative traditions, trained, dedicated employees, modern fleet and equipment, and future-oriented management. It provides friendly, competitive services that represent excellent value and meet the demands of its customers and travellers to the satisfaction and pride of all Malév owners and employees.

Company History:

Malév Plc operates one of Eastern Europe's most significant airlines. Its wide-ranging modern fleet of Boeing and Fokker aircraft carries over 1.5 million passengers per year. It is emerging from privatization with the reputation as the most progressive of the former Soviet Bloc carriers, having long embraced Western aircraft and operating standards. As Malév turned 50 in 1996, Hungary celebrated its 1,100-year anniversary. These milestones and the company's investments in long-range Boeing 767 airliners seem to reaffirm its commitment to the long haul.

Postwar Origins Behind the Iron Curtain

Like most of Europe, Hungary was torn to pieces by the hounds of war in the 1940s. Before the war, the country's young aviation industry had been steadily progressing since the Aero Joint Stock Company was formed in 1910. Although this venture was short-lived, military aircraft would be ferrying airmail between Budapest and Vienna within a decade, and these planes and personnel would carry out much the same mission after World War I in the MAEFORT Hungarian Air Transport Joint Stock Company, formed in 1920. Another new airline, the Hungarian Aviation Joint Stock Company, started carrying its own mix of passengers, mail, and cargo on the same route in 1922. Hungarian Aviation took the name Malert in 1928, and leaped into international flights in the 1930s. Much of the talent and material used to form Maszovlet--Malév's precursor--after World War II had been originally employed by Malert.

Maszovlet, the Hungarian-Soviet Civil Air Transport Joint Stock Company, was formed on March 29, 1946, as a joint venture between the Soviet Union and the Hungarian government. Moscow supplied aircraft, parts, other equipment, and training. Li-2 and Po-2 aircraft formed the company's first fleet. Airports and staff were already available in Hungary. Half of these personnel were former Malert employees.

The relatively undamaged Budaörs Airport became the company's base of operations, while comparatively primitive, unlighted airports in outlying areas were rebuilt. Maszovlet took to the skies on October 15, flying to Szombathely and Debrecen.

More regional routes were added at a rapid pace, and in 1947 Maszovlet began service to Prague. The company hired its first flight attendants in the same year. Out of 150 applicants, who were required to be at least bilingual, only four were chosen. The company also started drawing its own pilot trainees from within Hungary.

The company's popular provincial mail deliveries, begun in 1950, were a picture of efficiency. The flight crews simply dropped mail bags out of the plane at designated points. Maszovlet was also able to commence operations from the partially completed Ferihegy Airport in Budapest. Due to regulated airfares, not to exceed first class rail tickets, Maszovlet's domestic passenger operations blossomed in the 1950s. The airline began operating scheduled routes to Warsaw, Berlin, and Bucharest in 1954.

The same year, the Soviet Union withdrew from the cooperative arrangement. The Hungarian state airline, now known as Malév Hungarian Air Transport Company, was able to fly under its own power.

Going West in the 1950s and 1960s

Malév began flying into Western Europe in June 1956 with a new route to Vienna. A short time later, a DC-6 operated by KLM Royal Dutch Airlines touched down in Budapest en route to Cairo. Within a few months, the bloody 1956 Revolution prompted the airline to begin airlifting Red Cross packages from Vienna. However, the Soviet military ended these flights by closing the Ferihegy Airport on November 4.

When operations resumed three months later, the Hungarian government placed a new emphasis on Malév's international routes. This necessitated both airport renovations and the purchase of more capable aircraft. The Ferihegy Airport was fully modernized and several Ilyushin Il-14 airliners were imported from Russia and East Germany. This and the arrival of more Li-2 aircraft from the Hungarian air force (slated for cargo service to Western Europe) gave Malév the largest fleet--28 planes--in its history. By 1961, the company operated routes to about a dozen of continental Europe's greatest cities. At the same time, Western airlines began visiting Budapest in earnest. Hungary became a meeting ground for East and West Germans who could not cross their own partitioned homeland.

Hungary was the first Soviet satellite to operate the Ilyushin Il-18 turboprop, and the big, efficient, and reliable aircraft gave Malév a good tool for expanding its routes across Europe and the Mediterranean. In the 1960s, 28 cities from London and Helsinki to Damascus and Beirut received scheduled service from Malév. Malév Air Tours was opened in 1968 to promote tourism. However, domestic flights proved such a drain on company and government resources that they were discontinued altogether in 1968. The company initiated its charter service with a July 1969 flight to Glasgow.

The Jet Age

The company's first jet airliner, a Tupolev Tu-134, arrived in Budapest in December 1968. The Tu-154 was brought into operations in 1974. These introductions freed the larger Il-18 turboprops to carry the country's produce to the Middle East.

Although the Hungarian Airport Authority (LRI) became independent from Malév in 1973, improvements to the Ferihegy Airport were not completed until the mid-1980s. A new terminal was part of the renovations. By this time, the carrier, one of Hungary's 10 largest companies, was handling over a million passengers per year and was earning better and better profits year after year. It had given new attention to attracting consumers, opening ticket outlets in a handful of cities and introducing a series of budget fares. In 1983, foreign airlines began competing for Malév's customers. One of Malév's innovations was the offering of 10 nonsmoking flights in the winter of 1986: "Good air in the air!" it proclaimed.

Malév acquired a share in the Atrium Hyatt hotel in Budapest in 1982. Other ancillary activities included operating duty free shops and providing airport services for other carriers. A second terminal was built at Ferihegy Airport in 1985.

Post-Perestroika Privatization

By the late 1980s, the company's Tupolev airliners no longer seemed as impressive as when they were first wheeled out. Malév sought the Western-made aircraft it felt it needed to compete effectively, although political pressure to purchase Soviet aircraft delayed these acquisitions for years. A Boeing 737 and a smaller British Aerospace BAe 146, to be used as express freighter in a joint venture with TNT, finally arrived in November 1988. For a short time, it still bought used Russian planes such as the Yak-40 on an opportunistic basis for use on regional routes.

After 50 years as a socialist state airline, Malév was reorganized as a joint stock company in the summer of 1992, after first becoming a public limited company a year earlier. Thomas Deri served as CEO for a year during this transition; he was succeeded by András Pákay. The end of government subsidies meant, for one thing, the airline had to raise fares fivefold on some routes. It also needed support from an outside backer. Although an initial Credit Suisse First Boston attempt to find three minority partners failed, British Airways, KLM, and Lufthansa all expressed interest in the airline. Eventually, Alitalia and the state-owned SIMEST (Societa Italiana per gli Investimenti all'Estero) investment bank bought shares in the company. SIMEST acquired a five percent share; Alitalia's 30 percent share was worth $77 million and gave the company greater access to the East European market. The Hungarian government retained a 51 percent interest, while a small amount of shares were offered to employees and local investors.

Malév and Lockheed cofounded a maintenance company based at Ferihegy, in the hopes that Budapest would emerge as a service hub for the region. The new facility was swiftly certified by both American and European authorities. The airport invested in improvements, expanding its Terminal 2.

Where Soviet experts helped the carrier resume operations after the Great Patriotic War, the West was now called upon to transport Malév into parity with its contemporaries. The International Air Transport Association and Association of European Airlines helped train some of the company's staff. Scandinavian Airlines System helped bring Malév's in-flight service up to standard. A U.S.-based human resources consulting firm helped prepare performance and hiring guidelines and to improve the morale of employees conditioned to apathy by years under an unresponsive bureaucracy.

By 1995, the company was flying 12 737s. The company's two long-range Boeing 767 aircraft (engines supplied by GE) had incurred losses since their introduction (additionally, Pratt & Whitney successfully sued the company for breach of contract related to the use of their engines in a subsequent delivery of 767s). Finally, this operation, which on a scheduled or charter basis, served both New York and Japan, was turned around in 1995. On the whole, Western aircraft, though more expensive to purchase than the Russian Tupolev jets (a remnant of Soviet mercantilism) that had been the company's mainstay, had much lower operating costs. The company brought into operations additional Boeing 737 aircraft and Fokker 70 aircraft, the latter to replace the Tu-134 on regional flights, bringing the carrier towards its goal of an entirely Western-made fleet. Malév posted significant gains in cargo operations in 1995, as it installed a new PC-based system to support this area.

That year, Malév returned to profitability under CEO Sándor Szathmáry, turning a profit of HUF186 million, evidencing the success of its "Recovery Program." The key points of this plan were to reduce costs and to renegotiate certain contracts. The company continued to work with foreign consultants in order to streamline operations further. Factors that worked against the airline were the lifting of the embargo on the former Yugoslavia, which resulted in increased competition from that region's carriers.

Malév continued towards privatization as it approached a new century. Its alliance with Alitalia proved short-lived, as the European Commission ordered the carrier to divest its shares so it could receive an extra $1.6 billion in subsidies from the Italian government. One promising partnership was a joint Budapest-Geneva service operated with SwissAir. An initial public offering was under consideration for 1998.

Principal Subsidiaries: Air Bp. Kft.; Pannon Air Cargo Nemzetközi Száll&iacute™ányozó és Szolgáltató Kft.; MALCO Cayman Islands; Malév-Pannónia Hotel Kft. (50%); Aeroplex of Central Europe Kft. (50%); TNT Malév Express Légifuvarozási Kft. (40%); GÉPFET Gépipari Fejlesztõ és Tervezõ Kft. (27.6%).

Malév Plc History

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