INTERVIEW-Finland may soon scrap Finnair state ownership rule

Mon Feb 4, 2013 10:39am GMT

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* Move would make alliances, M&A deals easier for Finnair

* Government currently owns 55.8 percent stake

* Minister favours dilution by new investment, not a sale

By Jussi Rosendahl

HELSINKI, Feb 4 (Reuters) - Finland's parliament will likely vote in the next few months for a change allowing the government to cut its stake in Finnair, a minister said, opening the way for alliances and M&A deals by the struggling state-controlled airline.

Heidi Hautala, the minister overseeing state ownership in firms including Finnair, told Reuters she was speeding up plans to scrap a clause obliging the government to hold a majority stake in the airline.

Finnair is expected to have turned profitable on an underlying basis in 2012 for the first in four years after cutting costs and focusing on profitable long-haul flights to Asia. But it faces tough competition from discount carriers.

It is currently seeking a new chief executive after Mika Vehvilainen recently announced he would switch to Cargotec. Shareholders are also due to appoint a new board chairman for the company in March.

"I think this is exactly the right time to move on with this issue so that the new board and upcoming CEO would have a chance to consider different options," Hautala said in an interview.

State ownership has long been considered crucial to ensure Finnair runs direct flights out of Helsinki and provides easy access for businesses in the small Nordic state.

Hautala said she did not support a sell-off of state-owned shares, but wanted a dilution of its stake via new investment.

"It is clear that its chances to ally with others are smaller if the state's proportion remains as big as it is now."

Lawmakers would vote on whether to grant the government a mandate to reduce its stake from the current 55.8 percent to below 50 percent, she said.

Finnair last year handed over operations of a third of its European routes to British low-cost airline Flybe, but analysts say it needs to do more to secure its recovery.

Many say the state's controlling stake in Finnair has made it harder to consider more radical strategy changes, as labour unions keep pressure on politicians to preserve the status quo.

Finland's government is led by an alliance of the conservative National Coalition and more left-leaning parties including Hautala's Green party.

Hautala declined to discuss what Finnair's strategic options were, saying anything is possible including more government investment if an alliance requires it.

Hautala has played a major role in demanding change at Finnish companies, and last year forced Finnair to overhaul its board after an uproar over executive pay.

Former CEO Vehvilainen was credited with improving Finnair's finances. His resignation comes after a police investigation into his real estate dealings in which he was found innocent.

His predecessor Jukka Hienonen left the company in 2009, blaming labour unions for blocking his attempts to cut costs.

Finnair is due to report its 2012 earnings on Feb. 8. (Reporting By Jussi Rosendahl; Editing by Ritsuko Ando and Mark Potter)