Friday, January 9, 2015

Cyprus Airways grounded!

(Photo by Rob Finlayson)

Cyprus Airways suspended operations on Friday, after the European Commission (EC) ordered it to pay back over €65 million ($76.9 million) in illegal state aid, plus interest.

In a statement issued Friday, the EC ruled Cyprus Airways had “no realistic perspective of becoming viable without continued state subsidies.”

“Cyprus Airways has received large quantities of public money since 2007 but was unable to restructure and become viable without continued state support.

Therefore, injecting additional public money would only have prolonged the struggle without achieving a turnaround. 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,” Competition Commissioner Margrethe Vestager said.

Since February 2014, the Commission has been probing a package of over €100 million in Cyprus Airways restructuring aid, of which “over €65 million plus interest” was deemed to be in breach of European Union state aid rules. Cyprus Airways was ordered to “pay back all incompatible aid received,” triggering the airline’s grounding Friday.

The Cypriot government confirmed the “immediate termination of the flight program of Cyprus Airways” and instructed stranded passengers to contact travel agency Top Kinisis Travel Public.

According to the agency’s marketing manager Andreas Kakkouras, flights were suspended at around 18:40 local time. He was unable to immediately comment on how many passengers were affected, or whether operations are likely to resume.

Another Top Kinisis Travel Public employee told ATW the agency will be working through the night, chartering flights to get passengers to their destinations. “The Republic will undertake fully the cost of the alternative flights and therefore the passengers will not be burdened in any way,” the government said in a statement.

This offer applies to all passengers in possession of tickets up to and including Feb. 9. “For the remaining passengers, with departure date from Feb. 10 and onwards, a new announcement will be made in the coming days,” it said.

Ryanair, which was one of the potential bidders for Cyprus Airways, has already come forward offering rescue fares for stranded passengers.

Cyprus Airways, which is 93.67%-owned by the Cypriot State, had been in “economic difficulties for many years,” according to the Commission findings. In 2007, the EU cleared a €95 million restructuring package, but by 2012 Cyprus wanted to plough another €73 million into the carrier.

“Several tranches of this loan amounting to in total €34.5 million were paid out in breach of Cyprus’ obligation to await the result of the Commission's state aid scrutiny,” the Commission said. This was followed by yet another €31.3 million government-funded capital injection between September and December 2012, triggering the Commission to open a further investigation in March 2013.

“In October 2013, Cyprus notified to the Commission a €102.9 million aid package to restructure Cyprus Airways. The package included the €31.3 million capital injection mentioned above, a conversion of debts into equity amounting to €63 million and €8.6 million to cover the deficit of the company’s Provident Fund, an employee benefit scheme. The Commission opened an in-depth investigation in February 2014 to assess the measures,” it said.

Under EU rules, a company is only allowed to receive restructuring aid once in any 10-year period. Furthermore, Cyprus Airways failed to contribute enough to its own restructuring, falling “significantly below” the 50% minimum threshold.

“The Commission also found that Cyprus Airways’ restructuring plan is based on unrealistic assumptions and does not sufficiently reflect different market scenarios. The proposed restructuring measures do not appear appropriate to address the circumstances that led to Cyprus Airways’ difficulties. Moreover, the proposed restructuring period is longer than what the Commission has authorized in other airline restructuring cases,” it concluded.

In a similar case, Malev was ordered to pay back its illegal state aid in 2012, leading to its ultimate closure.

(Victoria Moores - ATWOnline News)

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