THE LOSSES of the state-owned airline Eurocypria could be as high as €14 million this year. This is why the government has already approved a bail-out plan by which it would pump €35 million into the company on the pretext of increasing its share capital. It is against EU competition regulations to give financial assistance to companies, which is why the government came up with the idea of increasing the company’s share capital.
Ironically, Eurocypria was bought by the state, at a high price, as a way of helping Cyprus Airways which was in dire financial straits and needed a cash injection to survive. As the state could not subsidise the airline it bought its loss-making subsidiary at a premium price. Now it needs to pump the taxpayer’s money into the charter airline which is in dire straits because of the economic downturn, to keep it afloat.
According to Politis reports, the government’s objective is to sell the airline – an interest has reportedly been shown by Marfin Investment Group – and believes that the increase of its share capital would make it more attractive to potential investors.
How a loss-making airline with high costs and mounting debts, could be attractive to any rational investor, in these economic conditions, is very difficult to understand. We suspect there would be no takers even if the government was prepared to sell Eurocypria for one euro.
For now, however, the government’s priority appears to be to persuade the airline’s staff to accept pay cuts; the objective is to save €1.8 million annually on salaries and benefits.
Unions have rejected the proposal, ignoring the finance minister’s warning that the airline could be forced to close down. The pay cuts are a part of the rescue plan which is similar to the one imposed on Cyprus Airways a few years ago.
The same tactics are being used by the government now as then – the unions have been told that if they do not accept the pay cuts the airline would close down because the government would not be prepared to increase the share capital.
The finance minister made it clear that if the rescue plan was not accepted in its entirety, the airline would not survive, even after the injection of €35 million. He was candid enough to admit that even if the share capital was increased and the rescue plan imposed, it was still not certain Eurocypria would be viable.
But why is the government prepared to go to all this trouble, when there is even the danger that the EU would judge the increase in the share capital as a subsidy and force the airline to pay the money back to the government? There are too many risks involved in ‘saving’ Eurocupria, which is beyond saving. Perhaps the government should consider cutting its losses instead of investing another €35 million it cannot afford to spend and will never recover.
