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Market Newsletter : East Bloc Tests a New Pilot: Courtesy : The former Communist regimes are scrambling to modernize planes and upgrade flight service. Their goal is to land Western customers and hard currency.


BUDAPEST, Hungary — Service with a smile remains a scarce commodity in Eastern Europe, but the skies are getting a little friendlier for the droves of tourists and business people flying over the fading Iron Curtain.

The state-run airlines of Hungary, Czechoslovakia and Poland are expanding to new Western destinations. They are replacing their aging, Soviet-built fleets with modern Boeings and Airbuses and retraining flight crews to grasp what to date has been an alien concept: The customer comes first.

Business and leisure travel to Eastern Europe rose 20% last year, and major travel networks such as American Express and West Germany's DER agency say an even brisker pace is noticeable this year.

East European airlines, dazzled by the promise of new hard-currency income, are shaping up to compete and cooperate with Western carriers to serve the business people nursing East-West trade ties and the tourists drawn to the sites where, only months ago, revolutions occurred.

Joint projects will allow airlines such as Pan Am, the Netherlands' KLM and Air France to cash in on the travel boom while helping the East European carriers cope with the immediate demands of Westerners willing to pay for capitalist comforts.

Among the indicators of the changing face of air travel in Eastern Europe:

* Malev Hungarian Airlines plans to replace its entire fleet of 21 Soviet-built Tupolevs with Western aircraft.

* Czechoslovak Airlines has embarked on an ambitious project to renovate the airport in Prague.

* Poland's LOT airline will take delivery of its third Boeing 767 in June, which will help the carrier expand its flights to New York, Chicago and Los Angeles.

* East Germany's Interflug reportedly may lease 17 Boeing 737-200 jets from West Germany's Lufthansa in 1992.

* Romania's Tarom airline is negotiating with Pan Am to start joint flights using Pan Am aircraft.

Hungary's state-owned Malev line in February doubled its fleet of Boeing 737s with the acquisition of three jets through an Irish leasing agent. The shift from Tupolevs to Western airliners will take more than a decade, said airline spokesman Reszo Banyasz.

"The problem with the Soviet aircraft is that the passengers we want to attract are used to something better," says Banyasz. "It's sort of like driving a Jaguar for years, then having to get used to a Fiat."

Malev flight crews, initially schooled by surly Soviet Aeroflot trainers, have been re-educated in the techniques of cabin service by Olympic Airways of Greece.

The airline also has granted landing rights to Air France, Sabena (of Belgium), Iberia (of Spain), Alitalia, KLM and Pan Am in exchange for blocks of tickets. Malev depends on the project with Pan Am to sell U.S. flights to its customers because the relatively small airline has no long-haul aircraft of its own.

But Malev this year plans new offices in Los Angeles and Chicago, along with expansion of its New York sales agency, to gear up for the start of regular service to North America in 1993, when it expects delivery of new Boeing 767s.

Czechoslovak Airlines' plan to upgrade the capital's airport is intended to offer a more attractive welcome mat to the growing number of Western visitors.

Airline personnel are being retrained to emphasize service, and the airline is considering selling shares to private investors, as is Malev.

"Now we are owned 100% by the state, and this situation should be changed in the future," said CzechoslovakAirlines executive Igor Czesany.

In buying its third Boeing 707, Poland's LOT hopes to expand its direct charter flights to New York, Chicago and Los Angeles from one or two per month to five, said Bela Pauer, a sales representative in Budapest.

LOT in January became the first East European airline to break with a decades-old agreement with soft-currency neighbors and peg its air fares to the U.S. dollar.

The intra-bloc rate structure is still in effect elsewhere in Eastern Europe, although Malev is also considering a cutoff of the bargain fares that run as low as $15 between Budapest and other capitals.

East Germany's Interflug is probably best poised to overcome the region's reputation for indifferent service because of close ties with Lufthansa, the West German carrier renowned for its safety record and precise service.

Lufthansa plans to buy a 26% share of Interflug as soon as Western assessors come up with a value for the East German conglomerate, which combines aviation services ranging from airport maintenance to crop-dusting.

The purchase and anticipated selloff of the subsidiaries will provide capital for route expansions and replacement of what is now an exclusively Soviet-built fleet that is aging, gas-guzzling and expensive to maintain, explained Rolf-Dieter Grass, a Lufthansa executive in Frankfurt.

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