Malev Hungarian Airlines 737-700. By Rob Finlayson

Hungarian state-owned Malev Hungarian Airlines (MA) announced it ceased all operations Feb. 3 at 6 a.m. local time because its cash flow situation became “untenable” after its partners lost trust in the carrier and began demanding advance payments for their services.

An MA source told ATW the carrier was also unable to pay a passenger-ticket-insurance, a value of €30 million ($39.5 million).

The government had put the 95% state-owned carrier into bankruptcy protection Jan. 30 (ATW Daily News, Feb. 1). On Tuesday the government created a fund of HUF2 billion for the thousands of travelers who would become stranded if the airline ceased operations.

“Unfortunately, the event occurred which we had a greatest fear of and we wanted to avoid ... our partners lost their trust due to the information published in the last days and they started to ask for payment of their services in advance. This speeded up the cash outflow and the situation of the airline became untenable,” the carrier said.

CEO Loránt Limburger said the owner was “unable to provide additional financial resources to operate after the EU decision” earlier this year calling on the carrier to repay the equivalent of up to $350 million in illegal state aid between 2007 and 2010 (ATW Daily News, Jan. 10).

MA posted a loss of $110 million in 2010. Hungarian prime-minister Viktor Orban said in several media outlets that he wanted to rescue the financially troubled carrier and the state needed a functional home carrier. He said the decision to ground the airline came after two aircraft were not allowed to take off from Tel Aviv and Dublin because of its debts.

Meanwhile, several European carriers, such as Lufthansa and Air Berlin, have announced they will add services and frequencies to Budapest (BUD). MA accounts for 40% of the annual turnover at BUD.

MA has 2,600 employees and a fleet of 22 aircraft—a mix of Bombardier Q400s and Boeing 737NGs.

It is the second European mainline carrier to cease operations in one week. Barcelona-based Spanair stopped operations after reportedly running out of financing options Jan. 28 (ATW Daily News, Jan. 27).  

Oneworld said in a statement it was assisting customers affected the MA’s suspension of services.