PARLIAMENT last night gave the nod to a €20 million cash injection for Cyprus Airways (CY), hours after now-defunct Eurocypria mounted a legal challenge that could upset government plans to bail out the ailing national carrier.
The €20 million is earmarked as compensation to CY for damages incurred due to the Turkish ban on the airline using its airspace.
Finance Minister Charilaos Stavrakis had previously urged the legislature to approve releasing the funds, warning that otherwise CY might go bankrupt by April. Even with this cash, Stavrakis had said, there were no assurances for the company’s long-term viability.
It is not clear how the administration will sell the cash injection to the EU, whose regulations prohibit state assistance to the aviation industry. Perhaps the government will use a similar argument as it did a year ago for a €35 million rescue package for now-bankrupt Eurocypria; at the time, Stavrakis said that aid would not be regarded as a subsidy as it was linked to the airline improving its finances.
But whether CY gets the cash, or all of it, will depend on more than the European Commission’s reaction, as other legal obstacles are being raised locally.
Yesterday’s approval of the €20 million almost coincided with a legal challenge by Eurocypria’s liquidator. Chris Iacovides, appointed late last year by Eurocypria’s investors to oversee the charter airline’s winding-up, is seeking compensation from both the state and CY for alleged damages incurred by Eurocypria.
In a lawsuit filed with Larnaca district court, Iacovides accuses the Republic and CY of conspiring to defraud Eurocypria and its investors of the airline’s assets. The lawsuit claims the accused engaged in fraudulent trading, breach of trust, fraudulent preference [in CY’s favour] and illegal intervention in the business affairs of Eurocypria.
The lawsuit claims the state and CY stole from Eurocypria the latter’s Larnaca/Paphos to St. Petersburg route. It says that the rights to the route were conferred on Eurocypria in February 2005 via a memorandum signed between the governments of Cyprus and Russia, and that no act has since been passed revoking those rights.
In a related development, CY announced yesterday it would begin regular flights to St. Petersburg as of April.
Iacovides is also asking Larnaca district court for an interim order prohibiting CY from flying to that destination.
In a statement released yesterday, CY called Iacovides’ allegations unfounded, and went on to assure its customers that the airline’s flight schedule “is not expected to be affected.”
“Cyprus Airways is in contact with its legal advisors and will provide substantiated responses to the allegations in court,” the airline said.
Iacovides countered with a sharply-worded statement of his own later in the day – around the time parliament was approving CY’s €20 million. In it, he said that as liquidator he had a responsibility “toward the investors of Eurocypria, including the company’s employees – and not toward the government.”
Whereas it was not within his remit to conduct an investigation into past causes that led to Eurocypria going bust, it was nevertheless his responsibility to report any actions “which conflict with the investors’ interests,” he noted.
Meanwhile, Iacovides has moved against the Republic, the Department of Civil Aviation and the Transport Ministry for having revoked Eurocypria’s air operator’s certificate. The appeal has been lodged with the Supreme Court.
Iacovides has drawn up a business plan for Eurocypria showing that a new downsized company could make a €30 million profit in five years. He has said there are a number of parties from Cyprus and abroad who are interested in investing in the airline under a different name and structure.
Moreover, Iacovides says he has proof in writing that the Finance Minister lied to the public when he said the government had sent the EU an initial notification of its intentions to prop up CY. In fact, Iacovides claims, the European Commission has no idea of these plans.
Iacovides says he wrote to the European Commission on 31 January asking it to look into plans to compensate CY and ensure that such compensation was “carried out in a fair manner.”
Eurocypria wants a piece of the pie from any compensation because it too incurred losses as a result of the ban on flying in Turkish airspace.
According to Iacovides, in its response, dated 28 February, the Commission said it has not been officially briefed by Cyprus authorities of any potential state aid to CY, and therefore could not comment on the matter for the time being.
The state bought Eurocypria in 2006 for 23 million euros from CY in which it has a 70 per cent stake to help the latter from going bust.
CY itself underwent painful restructuring in 2007 when it shed a fifth of its workforce and outsourced services.
