Hungarian flag-carrier Malev announced on Friday that it had stopped operating because its liquidity situation has become unsustainable and all its flights had been grounded as of 0500 GMT on Friday.
The airline had been placed under extraordinary protection from creditors and a receiver was appointed earlier this week.
Malev said its suppliers had lost confidence in the airline and started to demand payment, while the government could no longer provide cash injections for the company.
"This has accelerated the outflow of cash to such an extent, that by today the situation of the airline has become unsustainable," Malev's board said in a statement.
The stoppage comes after the airline was ordered by the European Commission last month to repay millions of dollars worth of state aid received between 2007 and 2010.
Hungarian flag-carrier Malev ceased operating early on Friday morning after 66 years of almost continuous service, after its planes were held overseas for unpaid debts.
Hungary's national airline had been placed under extraordinary protection from creditors and a receiver was appointed by the government earlier this week.
Malev said its suppliers had lost confidence and started to demand advance payment for their services, while the government could no longer provide cash injections for the company following a European Union ruling last month.
"This has accelerated the outflow of cash to such an extent, that by today the situation of the airline has become unsustainable," Malev said in a statement.
"The board, in order to minimise losses, has ordered a halt in operation of the Hungarian national airline."
All flights were grounded from 0500 GMT.
The stoppage comes after the airline was ordered by the European Commission last month to repay millions of dollars worth of state aid received between 2007 and 2010.
Prime Minister Viktor Orban told Kossuth radio on Friday that the decision to ground Malev was made after two aircraft were not allowed to take off from Tel Aviv and Ireland due to Malev's debts.
Orban said despite the stoppage he believed the country needed a national airline if it could find investors willing to invest in it.
"It is painful ... We tried to keep Malev operational as long as possible, but we could no longer do it as we would have lost our aircrafts seized abroad ... We had to stop," Orban told Kossuth radio.
"But I think restarting (the airline) is not impossible, and if we can get rid of the burdens inherited from the past, there could still be a Hungarian national airline."
Malev, which accounts for 40 percent of annual turnover at Budapest's international airport, has a leased fleet of 22 passenger aircraft.
After failed privatisation attempts, Hungary in 2010 bought back all but a 5 percent stake in the carrier, which employs around 2,600 people.
The government held a series of talks with Chinese carrier Hainan Airlines last year on a cooperation deal, but they came to nothing.
In a Jan. 9 ruling, the EU Commission listed various forms of state financing for Malev between 2007 and 2010 that it said it would not have been able to obtain from the market on the terms granted by the Hungarian authorities.
EU competition regulators opened an in-depth investigation into Malev in December 2010.
The airline posted a loss of 24.6 billion Hungarian forints ($110 million) in 2010, but early this month forecast a significant improvement in operating results this year on the back of higher revenue and by filling more seats on its planes.
(Reporting by Krisztina Than for Reuters)
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