Move effectively creates two national carriers
CYPRUS Airways (CY) announced yesterday that it had sold its charter firm Eurocypria to the government for £13.4 million, effectively creating two national carriers on the island.
In a statement to the Cyprus Stock Exchange (CSE), Cyprus Airways said it had accepted the government’s proposal for the acquisition of 100 per cent of the share capital of its subsidiary.
The sale price of £13,425,000 represented the market value of the company, CY said.
“The sale price was agreed taking into account two valuations carried out by PriceWaterhouse Coopers on behalf of Cyprus Airways and HSBC on behalf of the government and after negotiations between the two parties,” the statement to the CSE said.
It added that the sale of Eurocypria fell under the increase in Cyprus Airways’ contribution to the Restructuring Plan, which has been submitted to the European Commission by the Government of the Republic.
CY itself is majority owned by the government, which holds nearly 70 per cent of stock in the national carrier. The purchase of Eurocypria by the government had several aims including continuance of a national carrier if cash-strapped CY collapsed.
Eurocypria, which is entirely debt free and has just acquired a fifth Boeing aircraft, could also be used if CY staff went on strike. On top of that the sale price would help CY overcome a portion of its ongoing losses. The airline sustained a pre-tax loss in 2005 of £25 million.
The final step towards the purchase of Eurocypria was given the green light at Thursday’s cabinet meeting when ministers ratified the move after several months of negotiations.
But the European Commission raised doubts about the sale some months ago when it was informed by CY only weeks after it had submitted its restructuring plan to bloc.
Worried that the sale of Eurocypria to the government could be classed as indirect state aid to CY, which is prohibited under EU rules, the Commission launched a formal investigation.
But the government insists that it was natural that the Commission would have to ask about the proposal by the government to buy CY’s charter firm Eurocypria as this proposal had been submitted as an addendum after the rescue package was handed over to Brussels.
It said if Eurocypria was bought from CY at market value, rather than at an inflated price, it could not be considered state aid.
In May last year the Commission authorised a grant of rescue aid, which took the form of a government-backed loan of £30 million (EUR 51 million).
CY has since asked for a further loan of £55 million to help implement the restructuring plan, which provides for cutting one third of the workforce, revising routes and the outsourcing of certain services.
The government needs EU approval to guarantee the loan.
??
??
??
??
