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Thomas Cook Joins Opposition to LTU State Guarantees

Tourism giant Thomas Cook has joined its 50%-shareholder Lufthansa in lobbying against the EU Commission's approval of a state guarantee for a loan to troubled charter airline LTU.

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"Not one miserable D-Mark in subsidies"

Opposition is growing within the tourism industry to plans by the North Rhine-Westphalian government to issue state guarantees on loans issued to charter airline

LTU. Tourism giant Thomas Cook (whose brands include Condor and Neckermann) has joined Germany's national airline, Deutsche Lufthansa AG, in calling on the EU Commission not to approve the guarantees.

Lufthansa actually owns a 50% stake in Thomas Cook, and the remaining 50% is owned by retailer Karstadt-Quelle AG. Stefan Pichler,

Thomas Cook's chief executive, sees the guarantees creating a ";subsidy situation";, and argued against issuing ";state aid"; to give ";constantly unprofitable airlines"; a unilateral advantage in price competition.

But LTU Managing Director Sten Daugaard rejected these arguments. He told Handelsblatt that the charge of state subsidies just did not apply in his airline's case.

"We have not received one miserable D-Mark in subsidies,"; he said. LTU encountered liquidity problems after the collapse of Swissair, its 49.9%-shareholder.

Last weekend, a crisis meeting took place, at which NRW's state premier, Wolfgang Clement, drew up a financing plan for the further restructuring of the airline.

One of the essential features of the plan is that the state is to offer a guarantee for a credit of DM240 million to cover most of the gaps in the airline's financing that have arisen as a result of the Swissair collapse.

Daugaard said LTU needs for once and for all an effective restructuring plan. The airline expects to break even in 2003 and to produce a profit running into the two-digit hundred millions from 2004.

Daugaard rejected claims that LTU's flight costs are higher than those of its competitors. ";In terms of cost structures we are absolutely at a competitive level,"; said the LTU chief.

The airline had already dismantled 25% of its capacity and planned to give up three more jets used for medium-haul flights by 2003.

This year, he added, fleet utilization had averaged 88% – confirmation of the airline's right to carry on existing. LTU expects the EU Commission to give official approval of the credit guarantee in December.

The airline then hopes to receive the loan from a banking consortium, including Westdeutsche Landesbank, the state's central savings bank, and Stadtsparkasse Düsseldorf.

The latter institution is acting as a trustee for Swissair's 49.9% stake. An investor is being sought to take over these shares. Retailer Rewe owns a 40% stake in LTU.

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