Spanair collapse highlights folly of trying to turn Barcelona into a hub

The collapse of Spanair over the weekend left around 22,770 passengers stranded, as well as adding 2,000 more names to Spain's record 5.273 million unemployed.

Spanair's demise appears to be yet another illustration of the economic overreaching and ill-thought investment in prestige projects by Spain's regional governments — in this case, Catalonia.

The low-cost carrier announced that it "has ceased its operations, and thus, it has suspended all its flights from 2am Saturday." The airline said its last flight had landed at 10pm Friday. The company canceled some 220 flights at the last moment, grounding its fleet of 29 aircraft.

"Because of a lack of visible financing in the next couple of months, the company has chosen to cease the operation of its flights as a prudent and secure measure, and it will now take all legal pertinent measures," Spanair said in a statement.

On Saturday, the government said it had begun legal action against Spanair for violating the country's aviation regulations by suddenly closing down operations and grounding all flights.

To add to Spanair's woes, it now faces a nine-million-euro fine for two "serious infringements" of aviation security legislation, Public Works Minister Ana Pastor said. The alleged infractions related to obligations linked to continued service and passenger protection.

Spanair Chairman Ferran Soriano said the airline had failed to attract inward investment and consequently the regional government of northeastern Catalonia took the decision to stop providing funds.

Spanair was created in 1986, as a joint venture between SAS and now-defunct Viajes Marsans, with the Scandinavian carrier owning 94 percent. It operated from 15 Spanish airports and had routes to Europe, Africa and the Middle East.

The company underperformed in Spain's increasingly competitive low-cost sector, and its problems were exacerbated by a crash in August 2008 that killed 154 people. Eighteen people survived what was Spain's worst aviation disaster in 25 years.

SAS had already been searching for a buyer before the crash, and the following year sold 80 percent of the money-losing company to a group of Catalan investors led by the region's Tourism Consortium and investment promotion council, Catalana d'Inciatives, for a nominal one euro.

The project was touted by the regional government of Catalonia as an opportunity to convert El Prat into an international hub. Despite initial interest from the region's business community, little private money was forthcoming, and Barcelona City Hall and the regional government invested 37 million euros against 20 million by the private sector. A further 50 million euros was soon borrowed by the regional government to maintain the company.

Over the following year, a further 150 million euros of public money was pumped in, at a time when deep spending cuts in health and other public services were already being implemented.

At the end of 2010, Spanair reported an operating loss of 115 million euros. That year, the newly installed right-wing CiU nationalist party scraped together another 10.5 million euros to keep the company airborne.

The airline's chairman, Ferran Soriano, the former deputy chairman of Barcelona FC soccer club, has been blamed for failing to put together a viable survival and growth plan for the company.

The regional government warned Spanair's board in 2009 that it would no longer be able to fund the airline, and that a buyer needed to be found.

Since then, there have been talks with Lufthansa, Turkish, and Singapore Airlines. The last company to show an interest was Qatar Airlines.

Two weeks ago, Soriano announced that he was stepping down to join Manchester City soccer club's board, a move seen as a way to force the regional government to stump up more cash. But Catalan regional premier Artur Mas said no more money would be forthcoming.

The Catalan government cited the "current economic climate" and "European legislation concerning competition" as the major factors influencing its decision.

Spanair carried 12.56 million passengers in 2011, making it the fifth largest in a ranking led by Ryanair, with 34.17 million passengers, and followed by Iberia, Vueling and Air Europa, according to Aena.

Jorge Carrillo, who represents the labor union CCOO's airline division, accuses the regional government of mishandling Spanair's demise.

"The government won't come out of this smelling of roses," he said, calling for "urgent action by the regional government to minimize the impact on the workforce," and for it to "assume its responsibilities."

Aside from Spanair's 2,000 staff, based in Madrid and Barcelona, the jobs of a further 2,000 ground staff, cleaners and maintenance workers are also likely to fly out the window.