By Constantinos Psillides
THE EU Commission announced on Tuesday that it has started an in-depth probe into whether Cyprus Airways’ (CY) proposed restructuring plan was viable and whether Cyprus acted within EU law when it offered state aid to the cash-strapped national carrier.
“The commission has 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 commission said.
“It is also uncertain whether the proposed capacity reduction through the cancellation of routes is sufficient to compensate for the distortions of competition created by the state support,” it added.
The probe was expected by both the government and CY, who are now waiting for the EU to either scrap, or give the green light for restructuring.
The government gave CY over €100 million, via a €73 million rescue loan in December 2012, and a €31.3 million contribution to a capital increase in early 2013.
If the EU probe finds that the aid violated EU competition laws, the national carrier would be forced to return the money and thus declare bankruptcy.
According to the press release by the EU Commission, the probe would examine whether the company could effectively implement the restructuring plan on its own, without any aid from the state.
In the report, the EU Commission expresses concerns on whether the restructuring plan proposed will ensure the long-term future of the company.
According to the regulations provided by the EU Commission, a restructuring attempt for state-owned companies can only be given once every ten years, so as “non-profitable companies are not kept alive by artificial means”.
The Commission points out that it already approved a restructuring plan in 2007, which provided the company with state aid. “The company also received aid in 2012 and 2013, according to the new restructuring plan,” noted the Commission.
But while the threat looms in Europe, Cyprus Airways also has to deal with other problems, as Finance Minister Harris Georgiades made clear that he won’t sacrifice government policies in an attempt to save the national carrier.
The minister was referring to the issue of ‘open skies’, a constant source of argument between the government and the national carrier.
Regarding countries outside the EU, Cyprus has included a clause in bilateral agreements stipulating that Cyprus Airways is the only carrier that can fly to and from certain major airports unless it relinquishes the right to do so by not operating any flights for a six-month period.
The finance ministry argues that in some cases the clause is not implemented fully, resulting in Cyprus Airways keeping some destinations “locked” in. The government has been trying to amend the agreements to allow other carriers to compete with CY.
The matter resurfaced on Monday, when CY chairman Tony Antoniou told a CyBC morning talk show, among other things, that the government should rethink the policy to help Cyprus Airways.
The minister responded via Twitter late Monday night, tweeting that “the government pursues an open sky policy. The monopoly of Cyprus Airways to be ended”.
A source inside the finance ministry told the Cyprus Mail that “it was a necessary clarification. We are trying to save the company but not at the expense of government policies that promote competition”.
The source also pointed out that allowing other carriers to compete on equal terms was also an obligation included in the bail-out agreement with the troika of lenders.
Antoniou didn’t respond to the minister’s tweet and did not return calls seeking a comment.
By Constantinos Psillides