Of all modes of transport, air transport is by far the one that has grown the most in Bulgaria over the past several years. The country has become a desired destination for many European tourists and holiday makers from other parts of the world. The boom in Bulgaria’s tourist industry has become the strongest factor for the development of the local aviation market.

Most of the largest European air carriers operate on the local market, including majors like British Airways, Lufthansa, Austrian, AlItalia, Aeroflot, Air France, KLM, CSA, Malev, Lot and others, as well as a few low-cost carriers like Hungary’s Wizz Air, Slovakia’s SkyEurope and Italy’s Myair.

The domestic carriers’ fleets consists mainly of the national flag carrier Bulgaria Air, and the private Hemus Air and Viaggio Air, as well as some smaller charter-oriented companies.

Bulgaria Air is the successor of the former flag carrier Balkan Airlines, which has been in a process of liquidation for the past several years.

Bulgaria’s Parliament approved a privatisation strategy for Bulgaria Air on March 23 this year.

Under the strategy, the state will keep a “golden share” in the company in order to protect national interests. The golden share will permit the state to have the right to block key decisions of the new owner.

The potential investors should be Bulgarian-registered companies, and must be at least 51 per cent owned by companies or individuals from Bulgaria, the EU or the European Economic Area.

The strategic investors will be required to have had at least 150 million euro in revenue from air services in each of the past two years and to have carried at least 750 000 passengers a year over the same period. The financial investors must have managed assets worth more than 250 million euro in the past two years or have equity in other companies of at least 150 million euro.

The bidders’ investment plans for the first two years after privatisation will have a weight of 35 per cent in the winner-selection ranking, followed by price commitments (30 per cent), development of new destinations (20 per cent) and opening of new jobs, the remaining 15 per cent.

The Government has promised to complete the privatisation of the company by the end of 2006 so that Bulgaria Air will be competitive when the country joins the EU next year.

Bulgaria Air succeeded the country’s flag carrier Balkan Airlines, which was declared bankrupt in 2002 after a nearly two-year struggle to repay debts totalling about $100 million. Due to the restructuring of the company, a rise in fuel prices and the entry of low-cost airlines in Bulgaria, Bulgaria Air’s pre-tax profit for 2005 has dropped 71 per cent to 500 000 leva. The company, at present, accounts for 30 per cent of the air travel tickets sold in Bulgaria – a country of 7.8 million people – and about 25 per cent of the revenue from ticket sales.

The sale of Bulgaria Air had been discussed in Parliament several times over the past four years. The procedure, however, was delayed because of the June 2005 parliamentary elections and the following three-month period when negotiations for the recently formed coalition Government were under way.

As a result, Bulgaria Air today has to undertake measures to face ever-stronger competition and, at the same time, follow the restrictions imposed by the state due to its starting the sell-off.

So far, Bulgarian private airline Hemus Air and Austrian Airlines have officially announced interest in participating in the Bulgaria Air sell-off.

Hemus Air is the larger of the two private airlines in Bulgaria with 282 employees and 19 jet aircraft (mostly Russian) servicing regular, charter and cargo domestic and international flights.

The company was established in 1991 by the Government. It passed through several phases of restructuring and was sold to a local private entity in 2001.

Viaggio Air is a relatively new company (existing since September 2002), which services two international destinations (Vienna and Istanbul) and one domestic (Varna) with its two modern jets ART-42.

On May 5 2006 in Salzburg, the European Union and 10 countries from South East Europe signed an agreement for the creation of a common European airspace. Seven of the countries are in the Balkans, including Bulgaria.

The contract will synchronise their air transport legislation with EU standards. The common air corridor will enable market liberalisation and will help the economic development of the Balkan region.

Bulgaria’s joining of the so-called Open Sky agreement will confront the local companies with the competition of carriers from the EU. This is expected to put serious pressure on domestic airlines.

Bulgarian air carriers expect a 22 per cent growth in passenger transport in 2006. The increase may even reach 25 per cent for national carrier Bulgaria Air, but only if the company is privatised.

A total of more than five million passengers were carried to and from Bulgaria in 2005, according to data of Bulgaria’s Civil Aviation Administration (CAA). The year-on-year rise was 16 per cent, well above the five to six per cent increase registered on the international market.

In 2005, Bulgarian airlines transported about two million passengers, while the foreign operators, around three million.

A CAA analysis, however, reveals a negative trend: a smaller increase in charter flights than in regular flights. Data of the administration shows that more than three million passengers were carried on charter flights in 2005, up by 13.5 per cent year on year. Bulgarian charter companies transported 1.3 million and foreign carriers, 1.7 million passengers.

Bulgarian charter companies fly predominantly in the summer and to the seaside. The main charter carriers are Bulgaria Air, Hemus Air, BH Air, Bulgarian Air Charter and Air Via.

For passenger traffic Bulgaria currently operates four main airports – in the capital Sofia, in the Black Sea cities of Varna and Bourgas and in the second-largest city of Plovdiv, as well as a small airport in the northern Bulgarian town of Gorna Oryahovitsa. All the airports continue to be state-owned.

In April 2005, the former Bulgarian government, in a tender procedure, chose the operator Copenhagen Airport (CPH) to become concessionaire of the airports in Varna and Bourgas. The Danish company pledged 526 million euro in investments in the two airports for the term of the 35-year concession. CPH offered to pay the state 30 per cent of either annual total revenues or airport fees, whichever is higher, in exchange for the concession.

In early 2006, however, Bulgaria’s supreme court revoked the granting of the concession to CPH, after two unsuccessful bidders, Fraport from Germany and France’s Vinci Airports, appealed against the decision.

Although the current Cabinet continued the negotiations with Fraport and Vinci, the matter has not yet been resolved. Thus, Bulgaria missed the chance to have a foreign operator making first investment in the two coastal airports before the summer tourist season of 2006.

An option for the state now is also to continue to operate the airports in Varna and Bourgas. Some experts believe that the increased traffic has started bringing enough revenue for both to use it to invest in enlargement and modernisation. That is, if foreign tourists are not driven away by the existing poor infrastructure and service at the airports.

And another idea is to grant only the airport in Varna. It is developing very quickly and is expected to soon beat out the airport in Sofia in passenger traffic. Currently, about 35 Bulgarian and foreign air carriers fly to Varna.