The European Commission (EC) has decided to authorise rescue aid for Cyprus Airways, giving the nod to a C£30 million ($65 million) loan guarantee for the next six months while the government restructures the carrier.

The EC says that the loan must be granted at market rates to comply with European rules, and must be limited to what is needed to manage the short-term cashflow deficit of the company. Some of the funds will be used to compensate 123 workers who have already been laid off. The Cypriot government has agreed to provide the EC with a restructuring plan within six months.

"The aid is also warranted on the grounds of serious social difficulties," says the EC. "Some 2,400 staff members work directly for companies within the Cyprus Airways Group, which is not an inconsiderable number given the size of the total Cyprus workforce."

Brussels adds that the possibility of the aid having adverse spillover effects on other member states is limited by the size of the loan, its short duration and the relatively small size of the carrier. Cyprus Airways has already taken measures to reduce its losses shutting down its loss-making Greek scheduled carrier Hellas Jet. Athens-based Hellas Jet was set up in mid-2003 and operated three Airbus A320s on scheduled routes to the UK cities of London and Manchester and the Belgian capital Brussels. Cyprus Airways itself operates a fleet of nine A319/A320s and two A330s.

Rows over job cuts saw the carrier's chairman Constantinos Loizides resign earlier this year, with the restructuring effort now in the hands of new head Lazaros Savvides. Cyprus Airways is majority-owned by the Cypriot government. Net losses at Cyprus Airways have deepened to C£34 million last year, marking a 60% decline over 2003.

Cyprus was one of the 10 new member states that were admitted to the European Union in 2004, and the increased competition that came with membership was cited as one reason for the poor financial performance by the company. "This in combination with the substantial increase in the cost of fuel made the year very difficult," the group says.

Source: Airline Business