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Business Cyprus

CY on the verge of closure

Under fire CY boss Tony Antoniou

By Constantinos Psillides

EVEN though taxpayers have dished out nearly a quarter of a billion euros in recent years to keep Cyprus Airways (CY) afloat, the national carrier still faces bankruptcy if the European Commission doesn’t approve the airline’s restructuring plan, Finance minister Harris Georgiades told MPs yesterday.

Speaking before a joint session of the House Finance and Watchdog committees, the minister didn’t paint a pretty picture.

“The company has sold all of its assets, its operational cost is still high, employees have to be let go, wages have to be cut and the rescue plan is yet to be fully implemented. And all that could be in vain if the EU Commission rejects the proposed restructuring plan. In that case, the company will close down,” he said, adding that CY should expect a response from the EU Commission by October.

The Finance minister was referring to two capital injections by the state – a €73m rescue loan in December 2012 and a €31.3m contribution to a capital increase in early 2013. The EU Commission is now looking into whether the state violated EU competition laws.

If the funding is deemed illegal, CY will be forced to return the money, which will inevitably lead to its bankruptcy, MPs were told.

Besides the €104m in government-secured loans in the past two years, the company has also sold all of its assets worth €111m. Those assets included three timeslots at London’ Heathrow – the first was sold three years ago for €22m, the second in March for €6.3m and the third only last month for €22.9m – as well as disposal of head offices in Nicosia and Athens.

But Cyprus has been down this path before. In February 2010, the House approved a €35m capital injection for charter airline Eurocypria – the then-daughter company of CY – to continue its operations. The company finally closed down months later, in November, under heavy pressure from CY unions to keep the state carrier afloat and sacrifice the charter airline.

But even if CY survives and gets the green light from the EU Commission, it still won’t be viable, according to the Finance minister, who argued that finding a strategic investor is the only way forward.

Georgiades was not optimistic on that front either.

“We have been told that it would be hard to find an investor in the current climate. Of course it is. Why would someone want to invest in a company that is on the verge of bankruptcy?” he asked, pointing out that corrective measures should have been considered ten years ago, when CY was still robust.

“In 2004, CY’s operational costs were fully covered and had €110m in the bank. That was when we should have been looking for strategic investors.”

The Finance minister shifted the blame to previous administrations, blaming them for chronic mismanagement. “Those who are responsible for this mess should at least keep quiet,” he said, after AKEL MPs Stavros Evagorou and Irene Charalambidou accused the government of asset-stripping the company.

The deputies’ main concern was the sale of the Heathrow timeslots, which they argued were very valuable assets. Georgiades explained that timeslots in airports are not considered assets, since the company cannot liquidate them in the event of bankruptcy.

“We’d rather pay for the right to use them. We merely sold that right to other airlines. If the company closes down then we automatically forfeit that right. Selling the timeslots at a market price while the company is still in operation was the responsible thing to do.”

The airline has already said it will shift its business to London’s smaller and cheaper airport, Stansted.

Georgiades clarified that the money will be spent towards restructuring the company, if the EU green lights the restructure plan, or to compensate employees if it closes down.

Constantinos Holevas, from the Office of the Commissioner for State Aid Control, told MPs that he repeatedly warned past administrations that approving a government loan for CY was not a good idea.

“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,” he said.

CY’s dire financial situation was also illustrated by board chairman Tony Antoniou who told MPs that despite the fact that the company hasn’t received state aid since he took over, a strategic investor must still be found to ensure viability.

His comments provoked a reaction from AKEL MP Irene Charalambidou who accused Antoniou of incompetent management and misappropriation of funds. The AKEL MP accused the board of hiring the services of an advisory firm without inviting a tender and that Giorgos Kallis, a private shareholder and board member, “visits the company’s offices daily and receives payment.”

Kallis immediately reacted to the accusation, saying that he was paid by the company for his services “7 euros per hour for 8 hours per day, for 365 days a year.”

Charalambidou’s accusations prompted an angry response from another board member, Marios Hadjigavriel, who said that it was the first time he heard that Kallis was being paid by CY. Hadjigavriel resigned his post on the spot and likened the situation to a Greek tragedy.

Charalambidou also demanded answers on the course of the investigation regarding abuse of power by Antoniou, who was recently accused of charging the company for personal expenses.

The Finance minister said that the investigation is ongoing and that parliament will be notified when it was concluded.

Pilots’ union (PASYPI) boss Petros Souppouris asked the minister to set up a committee to oversee the implementation of the restructure plan.

“This is the only condition we haven’t met based on what was asked by the EU Commission. If we prove that the company is viable in the long run then they will approve our plan,” said Souppouris.

Asked if PASYPI will back a plan for the redundancy of 300 of the airline’s 600 workforce, Souppouris explained that both the catering and engineering departments can be privatised and take on CY, and other airlines, as clients.

Asked to comment on a statement by the Finance minister that the pilots’ average annual pay of €125,000 is too high, Souppouris said that the public knows why pilots, surgeons and university professors are paid high wages. “We hope that this is not an attempt by the ministry to distract public opinion from who really is to blame for the current state of affairs,” he said.

House Finance committee chair and DIKO leader Nicolas Papadopoulos asked the board to produce financial statements and to inform them of long-term plans. He also likened the selling of assets to “financial cannibalism, aimed only at keeping the company barely alive.”

Papadopoulos noted that if the board doesn’t have a long-term plan, “then we should take steps to protect the taxpayer.”

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