articles | 10 January 2015

Cyprus Airways closes down

Cyprus Airways was shut down after the European Commission ruled that more than €102m in government support given to Cyprus Airways (CY) in 2012 and 2013 constituted illegal state aid and €66m had to be repaid.

The national carrier cannot afford to return the money and operations were suspended as of midnight on Friday. Air Transport Licensing Authority (ATLA) has revoked the company’s licence.

EU Competition Commissioner Margrethe Vestager said that CY had no possibility of becoming viable without continued state subsidies, meaning the money would have to be recovered by the government.

“Cyprus Airways has received large quantities of public money since 2007 but was unable to restructure and become viable without continued state support…injecting additional public money would only have prolonged the struggle without achieving a turn-around,” she said in the statement.

“Companies need to be profitable based on own merits and their ability to compete and cannot and should not rely on taxpayer money to stay in the market artificially.”

A statement from the commission said that following an in-depth investigation, it had concluded that a restructuring aid package of over €100 million for CY gave the company an undue advantage over its competitors.

“Cyprus Airways therefore needs to pay back all incompatible aid received.”

At a press conference announcingthe end of the national carrier called by Finance Minister Harris Georgiades and Communications and Works Minister Marios Demetriades, Georgiades said that the decision wasexpected and shifted the blame to the previous administration.

“The state aid given to CY only managed to prolong the inevitable. Instead of restructuring the company when there was still time, the previous administration insisted on dogmatically denying any privatisation effort. Handing over the money to the company, in strict violation of the EU directive, ruined any future restructuring attempt as well as any chance of finding a strategic investor,” said the minister.

The minister stated that everyone who is either travelling with a Cyprus Airways ticket or has purchased one will be given a choice of either full reimbursement, or an alternative route with a different airline. The government has contracted the travel agency Top Kinisis to handle all details. Georgiades explained that Top Kinisis staff have been tasked to contact all ticketholders. The last ticket bought for Cyprus Airways is for October 2015.

The finance minister also addressed criticism over selling off the company’s timeslots at Heathrow airport last year, saying that if the government had failed to do so, the timeslots’ value today would be zero. Georgiades had received heavy criticism over selling the three timeslots, with opposition parties accusing him of selling out the company bit-by-bit. The slots were sold for €22 million, 12 million of which were used to pay off debt. The remaining €10 million will be seized by the state to cover a part of the cost of compensating the staff and passengers.

The communications minister promised that the government will ensure the island’s connectivity to the rest of the world.

“There are currently around 70 airlines operating in and out of Cyprus. Some of them will include new destinations in their flight plan and some will increase their existing routes. There will be flights for all Cyprus Airways destinations, either through direct or connecting ones,” said the minister, stressing that accessibility has been secured for at least a year.

Demetriades also stated that a new company is currently in the works. The new company would also be named Cyprus Airways and keep the CY logo, which the government bought from the company last month. Pressed to divulge specifics on the new company, the minister admitted that the project is still in its initial stages, adding that an advisor will be contracted next month to come up with an action plan.

Asked whether the new company would hire all CY staff, the minister pointed out that the government cannot force a private company to hire anyone.

As far as the staff is concerned, Georgiades told the press that they will receive full benefits, including provident fund and two months’ pay. The company’s payroll is estimated at around €2.5 million monthly.

Georgiades explained that it was not the government that’s shutting down CY, but the EU commission. “Since the EU commission rendered CY unviable, ATLA is forced to revoke its licence,” he said.
While the government has four months to appeal any decision, the finance minister clarified that no appeal will be submitted.

The airline, founded in 1947, employed 560 people, has a fleet of six aircraft and was flying to 13 destinations. It has been progressively losing market share for years from cheaper competitors making inroads on lucrative routes.

Labour unions, which were demonstrating outside the airline’s head office in Nicosia on Friday evening, have criticised authorities for failing to argue that assistance was given to the airline because of “exceptional circumstances” in Cyprus.

Those circumstances, they say, included high unemployment, an international bailout in 2013, which saw thousands of people lose bank savings, and loss of business from upheaval in the Middle East.
“They (authorities) didn’t do anything to explain to the EU why assistance was given,” said Petros Souppouris, head of the Cyprus Airways pilots’ union (PASYPI).

“This is the national identity of Cyprus which must be maintained. Staff believe the government should do its utmost to keep the company operational, or launch a fresh start with an investor,” he told Reuters.

“The commission could allow for a ten-year payment plan for Cyprus Airways. But the government never intended to make the company viable,” said the head of PASYPI, adding that “the hearts of these two ministers is as cold as the weather.”

The EU’s Competition commission opened an investigation into restructuring aid for CY. Its aim was to determine whether Cyprus’ plans to support the airline’s restructuring of €102m were in line with EU state aid rules.

The restructuring plan submitted to the EU ran from 2012 to 2017. It included a €31.3m capital injection granted in 2012, a conversion of debts into equity amounting to €63m and €8.6m to cover the deficit of the company’s provident fund, a benefit scheme for the Cyprus-based employees (excluding pilots), financed through contributions from the employees and CY.

In a press release in February last year, the commission said it had “doubts whether the restructuring plan is suitable to ensure Cyprus Airways’ long-term viability and whether the airline is capable of withstanding likely challenges in the air transport market during the next years.”

The EU body said also it was “uncertain” whether a proposed capacity reduction through the cancellation of routes was sufficient to compensate for the distortions of competition created by the state support.

Former President Demetris Christofias, under whose watch the handouts were given, said on Friday the airline’s problems stemmed from the loss of millions through reckless decisions taken by successive boards. “It was not we who recruited tens and hundreds of people before elections,” he said.

The former president was repeatedly warned of the danger in approving state aid for the ailing carrier, Constantinos Holevas from the Office of the Commissioner for State Aid Control, had told the House of Representatives Finance Committee on July, 2014.“We wrote letters, we appeared before House Committees and we repeatedly warned the administration that the decision to approve a loan was dangerous and legally questionable from an EU commission standpoint,” the official had said.

Cyprus Airways used to be a profitable company. In the 2002-2003 season CY reported a profit of €10.9 million CYP (around €18.5 million) but in the 2003-2004 that turned into a loss of 20.9 million CYP (around €35.5 million) mainly due to investing in the company Hellas Jet and buying new aircrafts. The meltdown was completed in the 2004-2005 season, when Cyprus entered the EU and Duty Free sales plummeted. The company turned a loss of CYP 33.5 million (around €57 million) and never recovered.

The CY board of directors announced later on Friday that the company would go into liquidation.

“Cyprus Airways would like to thank the millions of passengers that honoured us throughout our 67 year history, as well as the staff for their devotion and professionalism,” read a statement issued late on Friday.

Cyprus Airway’s last flight was CY337, taking off from Athens and arriving at Larnaca International Airport at 09:15pm on Friday.

Source: Cyprus Mail

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