Cyprus Mail
Cyprus

‘Plan in place’ in case CY closes down

By Elias Hazou

THE government said on Thursday it has a contingency plan in the event the European Competition Commission finds that Cyprus Airways (CY) must return some €100m in state aid, a ruling that would effectively spell the end for the ailing national flag carrier.

“We are ready for all eventualities,” Transport minister Marios Demetriades said, quizzed by journalists amid reports that the EU’s Competition commission was set to release its make-or-break verdict on CY by today.

“We already have a plan in place to fill the void created by the suspension of the airline’s operation,” Demetriades said, adding that the government will reimburse passengers and safeguard all redundancy-related pay to airline staff.

But he urged patience on the EU’s ruling, telling reporters that the government had no indications either way.

The minister acknowledged that should the EU find illegal the state aid given to the airline, the company would have to return the money, “in which case you realise that there will be no other option but to suspend its operation.”

Demetriades confirmed that the government has sent the EU Competition commission a revised restructuring blueprint for CY making the case that the airline is viable in the long run.

“The government is trying until the last moment to secure a positive response in order to avert the shutting down of the company,” he commented.

Responding to questions, Demetriades appeared not to rule out the establishment of a new national carrier, but did not go into details.

In the meantime, he said, both Aegean and Ryanair have applied for licences to operate locally out of Cyprus, adding that the government is seeking to bring in other airlines as well in a bid to increase flight connectivity.

“A great deal has been done in this direction, and I believe that soon these efforts shall bear fruit,” he said.

Aegean, meanwhile on Thursday announced that it will launch its Larnaca-Tel Aviv daily schedule in March, almost a year after it resumed flights to Israel from Athens, while it will also take advantage of the CY gap to start three weekly flights from Larnaca to Kiev, a route suspended due to the crisis in Ukraine.

The latest blow to CY – and a possible sign of its imminent demise – came when the stock exchange said that it would delist the shares of the 96 per cent-state owned company as the airline has failed to submit audited accounts since 2012.

The EU’s Competition commission has 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.

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.

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