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Thursday February 15 9:50 AM ET Bulgarian Govt to Step Into Balkan Airline Crisis

SOFIA (Reuters) - Bulgaria's government said it would take urgent measures to halt a crisis at national carrier Balkan Airlines, including possible legal action against majority owner Israel's Zeevi Holding.

Balkan remained grounded for a second day on Thursday as a row between Zeevi and the Bulgarian government remained deadlocked after Zeevi suspended Balkan's flying operations on Wednesday, saying it had decided to halt financing.

``The government will take urgent legal measures to stop the crisis at Balkan,'' Transport and Telecommunications Minister Antoni Slavinski told a press conference.

``By the groundless cancellation of Balkan's flights, the majority owner actually refuses to fulfil its obligation to be a national flag carrier,'' Slavinski said.

He said the government was holding urgent consultations with Balkan's creditors.

Balkan's spokesman Viktor Melamed, asked to comment on Savinski's remarks, said the company would hold a press conference at 1530 GMT.

Slavinski said the government's Privatisation Agency will ask prosecutors to investigate whether Zeevi was breaching the contract under which it bought 75 percent of Balkan for $150,000 in 1999, pledging to pay Balkan's debts of $100 million.

Under the terms of the contract, Zeevi was also to invest $100 million over five years.

The airline has since been plagued by conflicts with employees and the government.

In November, Balkan said it expected operational losses of $14 million for 2000 on an annual turnover of $150 million. The government holds 20 percent of the airline and employees hold the rest.

Zeevi grounded all Balkan flights, saying it was experiencing financial difficulties, which included non-payment of over $500,000 to renew mandatory insurance.

Zeevi's move came after the Privatisation Agency on Tuesday rejected a $230 million claim filed by Zeevi Holding over what it said were breaches of the acquisition agreement.

Zeevi demanded payment from the government for what it alleges are deficient assets discovered after the acquisition and said it had asked a Paris-based court to arbitrate.

Balkan's major creditors include LUKOIL Neftochim oil refinery and local insurance company Bulstrad. LUKOIL Neftochim had suspended fuel deliveries to Balkan over outstanding payments and said supplies would resume as soon as Balkan paid.

-- Rachel Gibson (rgibson@hotmail.com), February 15, 2001