articles | 09 January 2015

European Commission rules against Cyprus Airways

The European Commission has ruled that €102m in government support given to Cyprus Airways (CY) in 2012 and 2013 constituted illegal state aid, which could herald the end of the national carrier.

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

“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.

The government has four months to appeal any decision, and the airline has a 10-year window to repay any amount deemed irregular.

The airline, founded in 1947, employs 560 people, has a fleet of six aircraft and flies 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. “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 EU’s Competition Commission openedan 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.

According to EU rules, restructuring aid may be granted only once over a period of ten years to prevent inefficient companies from being kept artificially alive with repeated subsidies. The Commission had earlier approved restructuring aid for CY in 2007, but there followed additional public interventions, including the 2012 capital injection and a €34.5m rescue aid loan in 2013.

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.

Source: Cyprus Mail

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