THE GOVERNMENT and Cyprus Airways (CY) have a “tough fight ahead” to convince the European Commission of the need to save the national carrier from closure, Communications Minister Tasos Mitsopoulos said yesterday.
“We are facing a harsh reality and have to give a very tough battle,” Mitsopoulos said following the decision of the European Commission to investigate Cyprus aid to the state-owned airline.
The minister said the commission feels “misled” by the Cypriot authorities and will need convincing that CY is worth rescuing.
The commission announced on Wednesday that EU competition regulators have opened an “in-depth investigation” into whether €104 million in state aid granted to CY complies with EU state aid rules.
“At this stage, the commission has doubts whether these measures are in line with EU state aid rules,” said the statement.
The commission said it doubted the airline's capital increase, with a €31.3 million contribution from the Cypriot state, was conducted on market terms. It is looking into a €73 million rescue loan for the ailing airline.
The commission noted that loan payments made to CY this year already appear to have violated the rules since they were made without getting prior Commission approval.
Another violation being investigated is the fact that Cyprus Airways already received aid in 2007, though EU state aid rules specify that companies in difficulty can receive rescue and restructuring aid only once over a ten-year period.
The commission further doubted the credibility of the CY’s restructuring plan, and questioned the intention to grant compensation to redundant personnel over and above what they were entitled.
In its statement, the commission emphasised that “no further state aid measures in favour of Cyprus Airways should be implemented without the commission's prior approval”.
The latest announcement comes after the airline revealed on Monday that it had more than doubled its losses in 2012 to €55.8 million.
Commenting on the latest developments, Mitsopoulos said the commission requested information on the airline as far back as February 2012.
“This means the commission feels that at some point it was misled and cheated for not being informed in time, either because it was given information that does not reflect reality or the Cyprus Republic has not respected its contractual obligations,” he said.
The authorities were notified on January 10, 2013 by the commission that the measure taken providing state aid was illegal.
The communications ministry will work in coordination with the finance ministry to send the message that the national airline needs to be rescued, said Mitsopoulos.
The ministry will hire the help of Brussels-based legal advisors to figure out how to handle the situation, he added.
“I believe valuable time has been lost, because at least we could have given the message that we are making a serious and structured effort to restructure and reform the company to make it more viable under the circumstances, limit the extent and size of its losses, and make it more functional,” said the minister.
CY chairman Stavros Stavrou said the commission investigation was expected but questioned what will happen to the national airline in the meantime.
He asked how the airline was expected to proceed with restructuring if it didn’t get the millions of euros needed to implement the plan.
“If we don’t get it one way or another, than we can’t perform miracles,” he said.
Stavrou argued that the EU is looking to get more information about measures taken, “but they’re not telling us to stop or not proceed with measures provided in the (restructuring) plan”.
The chairman said he would discuss with the finance ministry to decide how best to move forward with the necessary redundancies as specified in the plan.