THE EUROPEAN Commission yesterday raised doubts about Cyprus Airways (CY) restructuring plan and is opening a formal investigation, it said yesterday.
In a statement from Brussels, the Commission said the plan, which was submitted to them in November last year by the government, might violate rules prohibiting state aid to enterprises.
“The Commission has doubts that the current plan is in accordance with the Community framework for rescue and restructuring of firms in difficulty,” a statement from Brussels said.
“The Commission has today decided to open a formal investigation…”
CY chairman Lazaros Savvides told state radio last night that the airline was not concerned.
“We are not worried at all,” he said. “What we need to do is speed up the process. The final answer will probably given in September, and if possible before that.”
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).
The decision included an undertaking by the Cypriot authorities to notify a restructuring plan for Cyprus Airways, the Commission said.
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.
The plan also includes the sale of CY’s charter firm Eurocypria to the government for around £15 million. Eurocypria is owned 100 per cent by CY and CY is owned 68 per cent by the government.
The Commission also said the plan included a planned capital increase of £14 million scheduled to take place 18 months after the start of the restructuring “and dependant on the successful implementation thereof”.
“The Commission is not in a position to assess the exact amount of state aid that this plan would include, nor to determine whether this aid would comply with the various conditions applicable to aid for restructuring firms in difficulty, especially as regards the limitation of aid to the minimum and the need to avoid undue distortion of competition,” said the Commission statement.
The Commission will now send a letter explaining its doubts and questions on the proposed restructuring plan, which will be published in the Official Journal of the EU, it said.
“The Cypriot authorities and interested third parties will have one month at their disposal to send their comments on this letter,” it added.
The restructuring plan also ran into trouble with staff. After months of negotiations agreement was reached with the unions at the beginning of this year.
Pilots however are still at loggerheads with the board, accusing the company of going back on what was agreed with them under the plan.
They also said the plan is not enough to save the airline, which also recently announced that it was looking at the possibility of renewing its fleet by the middle of next year. Studies to that end are currently underway.
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