Cyprus Mail
Cyprus Opinion

Cyprus Airways downfall was always just a matter of time

By Jean Christou

IT WAS always going to be a matter of time before Cyprus Airways (CY) went belly up given the way the company was being run into the ground by the interests of successive governments, management and unions.

Was it a miracle then that it lasted over 60 years and survived the aftermath of an invasion before EU accession finished off the job in a mere ten years? No, that was down to decades of protectionism by the state, which has ironically been its undoing in the end. By propping up the airline with millions of euros in an effort to keep it afloat in recent years, the state broke EU rules.

And for anyone who thought the Commission would not play hardball and take down a member state’s national carrier, they only need to look at what happened to Hungary’s Malev in 2012. No one can say Cyprus Airways wasn’t warned.

CY was never ready for air transport liberalisation even after open skies arrived in 2004, and it was still not ready for competition ten years down the line. It has always used unfair competition as an excuse for a state bailout while doing nothing to change how it operated, other than paying lip service to the notion of restructuring plans. People would be made redundant and walk away with thousands only to be re-hired. The major restructuring plan in 2007 saw staff reduced from 1,354 to 1,197 by 2008. This went up to 1,226 in 2009 and 1,389 in 2010 until the most recent cuts.

And when it could no longer ignore the plethora of low-cost carriers swooping in, CY tried to compete by cutting fares. But trying to compete with low-cost carriers on fares alone, without creating a low cost-structure was always going to be a recipe for disaster.

For instance until Friday CY had 560 staff – once upon a time this was close to 2,000 – and was operating only six remaining aircraft from a high of 12. Low-cost Ryanair has 300 aircraft and 8,500 employees. These figures translate into 27 Ryanair employees per aircraft, and for CY, a whopping 93 staff per aircraft. Even as recently as 2009 when CY operated 11 aircraft, it had 1,226 employees, making it 111 staff per aircraft.

Overstaffing has always been a problem with the airline coupled with the sense of entitlement that came with a CY job, especially for pilots, some of whom earned more than the President. Even when the company was clearly in dire straits and their pay was cut, they resorted to the courts to get the money back. They may have shown reasonable – by ordinary standards – salaries on paper but had managed to secure the remainder as tax-free allowances and expenses. CY staff layovers abroad were also legendary, as are past tales of people in the accounts department bringing their knitting to work for want of something to do. Year after year, CY annual reports singled out staff costs as the airline’s biggest expense.

Former chairman Constantinos Loizides once said the biggest financial problems confronting CY were massive overtime costs, sick leave and accumulated leave by pilots.

“We have reached the point where employees call the company to ask how many sick days they have left,” he was quoted as saying. Staff were allowed 13 uncertified sick days every year. They were also for years allowed to count their working hours and allowances from the minute they left their homes to travel to Larnaca airport.

Over the years strike action and walkouts have frequently occurred during the summer peak season, when they had the maximum impact on flights. Pilots once threatened to strike unless four of them were promoted for every two pilots promoted in CY’s charter firm Eurocypria. Unions too were constantly in conflict. When one secured a benefit or pay hike, the rest would kick up a stink until they received the same.

In another well documented case, and one of the few where someone was fired, a CY official abroad fiddled her expenses to the tune of £50,000, submitting receipts in a language other than Greek or English which the company did not check until an eagle-eyed auditor spotted a discrepancy in receipts that turned out to be shoes, cosmetics and other items. The woman in question was very well connected politically, which leads to one of the other main reasons for CY’s demise.

Cyprus Airways was used by successive governments without exception as a means of granting political favours. On top of that every politician and his mother and grandmother… literally… had free travel. Staff were hired irrespective of numbers because they belonged to the right political party and when it came time to be tough on wages or cost-cutting, no government could bring itself to lose the votes of 2,000 people and their families. And you could not get a job on merit.

Add to that the contracts handed out to those close to the board. Because Cyprus Airways operated under company law, which only forbids tender applications from employees of the commissioning company, the airline’s board members, who were not classed as employees, could get away with it, and only a few cases have come to light.

The late DIKO deputy Nicos Pittokopitis once accused former CY chairman Haris Loizides of nepotism, saying the chairman’s family firm supplied the CY catering department with smoked salmon. However he did admit himself to influencing the appointment of the manager of the Paphos airport duty-free shop because he said if he hadn’t, the candidate in question would have been overlooked for the job.

“The director of the duty free has three university degrees and English, German and French,” he said. “If this is nepotism considering people being hired (in CY) who can’t spell their name right and say ‘don’t ask me something in English because I don’t know’… is this nepotism?”

It was also the politicians who appointed those who helped run the airline into the ground.

Former vice chairman Frixos Savvides, who was instrumental in drafting the initial rescue plan, said one of the real issues being ignored was the failings of management.

“They were always ‘on top of things’ and everyone else below them was to be blamed except them. Any time a company goes drastically wrong, the first people that must go must be management,” he told the Sunday Mail in a past interview.

In 2005 another former vice-chairman Achilleas Kyprianou called on the government to come clean and publish the results of two probes into management decisions at the ailing airline. At issue was the leasing, buying and selling of aircraft involving millions in commission. Neither report ever saw the light of day.

International airline consultants Sabre, which drafted one of the two reports, highlighted other unsound choices, such as increasing seat capacity after 9/11, when all other airlines were cutting costs by an average of 12 per cent.

Again it was the state’s decision not to act on the findings as it has always been the state’s decisions that finally led up to the investigation by the European Commission, and the rest as they say, is history… just like Cyprus Airways.

The inaugural flight
The inaugural flight

 

TIMELINE

1947: Cyprus Airways established as a joint venture between the Colonial Government of Cyprus, BEA (British European Airways), and private interests.

1960: The new Cypriot government became the majority shareholder with a 53.2 per cent holding. BEA’s still held 22.7 per cent and private individuals the rest. Cypriot nationals began to be hired and trained

1965: Cyprus Airways began leasing its own Viscounts from BEA for regional routes. The moufflon, was adopted for the airline’s logo.

1974: The Turkish invasion caught all five CY aircraft on the ground, one of which is still lying on the tarmac at the old Nicosia Airport. Operations were suspended.

1975: Operations resume with severe wage cuts

1984: CY takes delivery of its first Airbus A310, one of the first airlines to use the aircraft. By the end of the decade its entire fleet was made up of Airbuses. Profits reached record levels in the mid-1980s and the airline was carrying 740,000 passengers a year.

1992-2000: CY creates Eurocypria charter airline and took over the lucrative Duty Free Shops at the airports. It signed numerous co-operation agreements and was carrying over one million passengers and had a market share of 40 per cent

2000-2010: The airline introduced a new livery and embarked on an ambitious fleet renewal. Hellas Jet was established in Greece. It was losing one million Cyprus pounds a month when it was sold in 2005. Cyprus joins the EU in 2004, bringing with it air liberalisation. CY is unable to compete. In 2006 the government bought Eurocypria and CY embarked on a failed restructuring plan

2010-2014: Profits keep falling, culminating in a loss of €55m in 2012. CY begins to sell off its assets including its three slots at Heathrow. The previous government gives the company illegal state aid in 2012 and 2013

2015: The EU rules the handouts illegal and CY’s operations are suspended

 

DAYS OF DANGER

In 1961, an aircraft jointly operated by BEA and Cyprus Airways crashed in Ankara at take off following instrument failure and in 1967 a CY aircraft broke up in midair on a flight between Athens and Nicosia in what was believed to have been an explosion, killing 66 people. In the seventies three hijackers were flown to Athens aboard a CY plane under police guard to make a connecting flight to Baghdad and in another terror-related incident 15 Egyptian commandos were killed in an exchange of fire with Greek Cypriot soldiers at Larnaca airport while hostages and abductors remained on board a CY plane on the tarmac. In the eighties gunmen seeking freedom seized a CY plane at Beirut and held 12 hostages. They later surrendered. Terrorists were not the only ones to ground a CY flight. In 1998 a squirrel that had been smuggled on board by a child escaped and it took days to find.



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