The future shape of Cyprus Airways looks likely to depend on the outcome of the European Union (EU) review of its financial restructuring plan, submitted last November.
This is centred on a proposed C£55 million (€95 million) long-term government guaranteed loan and the sale of its charter subsidiary Eurocypria Airlines to the government, “at a market value determined by an independent valuation”, says general manager Christos Kyriakides. This has raised concerns that aspects of the plan may contravene EU rules on state aid, but the airline has since responded fully to these concerns and now expects a smooth passage through the labyrinthine EU process, says Kyriakides.
Although the Cyprus government is not actively pursuing privatisation for its flag carrier, it has stated that if interest emerges from a private strategic investor, it would review its policy. This too would have a significant bearing on the airline’s future.
But already the struggling Cypriot flag carrier has made major strides in its effort to reduce unit costs and to return to profitability. A significant part of this has been the agreement forged with its staff on a cut in salaries, which, according to Kyriakides, ranged from 5% for low-paid workers to 25% for management and flight crew. Although agreements have been reached, the pilots union continues to be unhappy at the level of the cuts, and mounted a 24-hour strike in March, but Kyriakides maintains that operations are not affected by the dispute.
“We must find a mutually acceptable solution, within certain parameters,” he says, adding that a strong and profitable airline is of benefit to both sides. Redundancies, both forced and voluntary, initiated in February, together with a second group of staff leaving at the end of April, will have gone a long way towards the desired 20% reduction of its 1,800-strong workforce.
While no hard figures are available from the airline, Kyriakides says that Cyprus Airways has continued to make financial progress in the first three months of 2006, in spite of higher fuel prices, following on from the substantial reduction in losses reported last year. Ironically, it was its Greek subsidiary Hellas Jet, once a heavy drain on the airline, that contributed to the healthier result, says Kyriakides.
Cyprus Airways changed the operational structure of Hellas Jet from a scheduled airline to an aircraft broker and charter operation, and handed the running of the airline over to Greek company Air Miles. At the end of May, Air Miles will take a 51% stake in Hellas Jet, with Cyprus Airways maintaining a put option for the remaining 49% holding at some future date.
The green light from the EU, which Kyriakides hopes will be given by autumn at the latest, and continued progress on cutting expenditure, possibly through divestment of peripheral activities such as catering, should see Cyprus Airways significantly reduce the losses of previous years. ■
GUNTER ENDRES / LONDON
Source: Airline Business