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Cyprus’s government has given green light for Cyprus Airways Ltd. to increase its capital and authorized negotiations for the sale of an unspecified stake of the state-run carrier to investors.

The government reaffirmed a previous “decision to raise the share capital of the company and approved the participation of the government as main shareholder in the new capital issue,” government spokesman Stefanos Stefanou told reporters in Nicosia today. “The government also decided to authorize the finance minister to negotiate the sale of Cyprus Airways shares and shape a relevant proposal that will be submitted to cabinet for approval.”

The government’s decision to participate in the company’s capital increase must be approved by the east Mediterranean island’s Commissioner for State Aid, Stefanou said, declining to comment on the company’s value.

Last year, the airline, which posted 29.3 million euros ($38.4 million) in losses in the first half of 2011, received 20 million euros in compensation package from the Cypriot government for extra costs incurred as a result of Turkey’s ban on Cypriot traffic and underwent a restructuring plan in an attempt to save 40 million euros annually.

Talks to sell the loss-making airline to Russia’s Aeroflot have already begun and are at an “advanced stage,” while Lebanon’s Middle East Air Airlines has also shown interest in buying a stake in the carrier, Kathimerini newspaper reported on its website today, without saying where it got the information.

Cyprus Airways has seen its stock recover this month on reports that the government was mulling the sale of a majority stake to a strategic investor. Share rose for a sixth day, climbing 6.7 percent to 0.08 euros today after falling to a six- month low of 0.046 euros on Jan. 31.

BW/ Bloomberg

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