The decrees, published in the official legal gazette's website, set down rules of compensation for passengers from state coffers in case Malev stops its flights, and March 31 as the deadline for the submission of compensation claims.

Government spokesman Andras Giro-Szasz said the existence of a Budapest-based air carrier remained Hungary's interest.

He told the television channel ATV that Malev's management would prepare a liquidity management plan by the weekend.

"Meanwhile, the development and economy ministries continue the talks ... with the possible foreign investors," he said. "There are (investors) interested."

He did not name any investors.

The government is in a race against the clock to keep debt-stricken Malev in business, after it was placed under bankruptcy protection.

The government put Malev under protection from creditors on Monday after a European Commission ruling forced the loss-making carrier to repay millions of dollars of state aid received between 2007 and 2010, an amount equivalent of its total 2010 revenue.

Malev Chairman Janos Berenyi told a news conference before Tuesday's government meeting at which he fate of Malev was discussed that management was in talks but did not give further details.

He said management's priority was to keep the airline aloft until the government secures a new investor to take over or draws up another solution.

"In this form we can certainly not continue, so we are aiming for a gapless transition," Berenyi said. "We hope we can last as long as possible while a new national airline is formed that can serve all the functions currently performed by Malev."

Berenyi said the situation was volatile as Malev's funding should last as long as a month under normal circumstances but cash could run out within days if partners lose confidence and start asking for advance payments or deposits.

"If we can avoid these things, we will be able to fly, but if we cannot, anything can happen," Berenyi said. "We are flying and I hope we will fly tomorrow and I hope our owners can support us in this."

After failed privatisation attempts, Hungary in 2010 bought back all but a 5 percent stake in the carrier, which employs 2,600 people. It posted a loss of 24.6 billion forints in 2010.

Berenyi said the government was discussing Malev's situation in a bid to secure an investor and maintain a momentum that saw Malev increase bookings and passenger numbers on its flights over the past six months.

He said Malev's flights were still running on schedule.

"It also depends on what a new partner wants, whether there is someone willing to take over this debt, in which case Malev could even continue in its current form. However, the main thing is that the state cannot provide us any more money," he added.

He declined to go into details about the potential investor or investors. Berenyi said Malev's total outstanding debt stood at around 60 billion forints.

The airline, which accounts for 40 percent of annual turnover at Budapest's international airport, has said it had managed to agree with U.S. firm ILFC on the continued lease of its fleet, which comprises 22 passenger aircraft.

(Reporting by Gergely Szakacs and Sandor Peto; Editing by Jodie Ginsberg and Steve Orlofsky)

• A Permanent Economic Emergency