By Hamza Hendawi
TAKIS KYRIAKIDES is hell-bent on salvaging Cyprus Airways. So much so, in fact, that the national carrier’s boss told stock brokers three months ago that, as a last resort, he would have no qualms about closing the airline and reopening it the next day under a new name and with a fresh set of employment terms that would greatly reduce the power of unions.
Some of his listeners thought he may have been exaggerating to make a point, while others perceived the remark to have been “made in parenthesis,” a sort of an anecdote.
But will he do it if he has to?
“To close down the national carrier and reopen it the next day as the only option left to save Cyprus Airways, can only be done with the political backing of everyone, something the like of which is not available in Cyprus, ” said Evros Constantinou, a market analyst with Hellenic Investment, the Hellenic Bank’s brokerage and investment firm.
“But after all, there is much value to be put on continuity,” he said.
Not everyone agrees, however, and, besides, the Cyprus Airways chairman still has a bit of time to steer the company back into the black and lay the foundations for medium and long-term profitability.
Already, Cyprus Airways’ management is showing what one analyst called “fine tuning” in some areas. Routes running at a loss have been discontinued, some overseas offices have been closed, and the company is expected to return a profit for 1998, bucking a two-year streak of losses.
But everyone is warning against reading too much into this slight improvement in performance, and everyone agrees that Kyriakides still has something of a “mission impossible” to complete.
The 51-year-old Cyprus Airways has been in the red for two successive years, and its trade unions are becoming increasingly militant in their rejection of a blueprint, or a “strategic plan”, put together by a group of foreign consultants last year to reform the company.
With the total deregulation of air travel within the European Union now set to come into force in 2001, EU applicant Cyprus can hardly expect to remain protected from the open skies concept for much longer after.
In fact, low-cost, no-frills start-up carriers are already waiting in the wings to pounce on Cyprus Airways’ most profitable routes – Larnaca-London and Larnaca-Athens – the very second the green light is given.
Jockeying for position at the head of the queue is Stelios Hadjioannou, whose Easy Jet is already taking on such big operators as British Airways and KLM on their own turf.
“The company must persuade trade unions to accept the strategic plan,” said Stavros Agrotis, a senior broker with CISCO, the Bank of Cyprus’ brokerage and investment arm. “The other side of the coin is the company’s collapse.”
The plan, among other things, recommends the allocation to the airline’s nearly 2,000 workers of six per cent of shares free, and a further six per cent at a discount in return for agreement to salary cuts of up to 10 per cent and a three year pay freeze. The unions have rejected the offer.
The Cyprus government owns 80 per cent of Cyprus Airways, while the rest is traded on the Cyprus Stock Exchange. Under bourse regulations, the government must reduce its stake in the company to 70 per cent by March, but the strategic plan envisages a government ownership of 51 per cent.
“I think Cyprus Airways’ unions are involved in brinkmanship,” said Yiannos Tirkides, chief economist at the Cyprus Popular Bank. “They’ll back down and make concessions when they see that the company is on the verge of collapse.”
If true, such union tactics could pose a mortal danger to Cyprus Airways. “Unions can take management to the abyss but it could be too late by then to pull back,” said a market analyst who closely monitors the airline.
While talks between the management and the unions are continuing, apparently without making much headway, Kyriakides this week announced that the company had started contacts to join one of the four global airline alliances as a way of gaining better access to markets.
“We are talking to several companies and want to hope that we will have a clearer picture of the situation in the next few months,” Kyriakides said on Tuesday, without giving details.
He also announced that Cyprus Airways was prepared to sell a 17-per cent portion of its share capital to a major foreign carrier that must also be a member of the alliance it will decide to join at the end.
While appearing on the surface to be a reasonable proposition, finding a buyer for a stake in Cyprus Airways might prove difficult for a company, which has earned a place in Cypriot folklore through its proverbial £8,000- per-annum cleaners and £55,000-per-annum pilots.
Cyprus Airways’ search for a buyer also places it in a long queue of other airlines in search of the same.
Indian Airlines, Air India, Pakistan International Airline, Thai Airways International and Biman Bangladesh Airlines – carriers of countries with multi-million expatriate communities who return home at least once every two years – are already prowling around for buyers.
The volume of their business and, in the case of India and Thailand, their link to major tourist destinations put Cyprus Airways at a slight disadvantage as an attractive buy.
“The idea of looking for a buyer makes good sense,” said Agrotis of CISCO. “But Cyprus Airways must first make sense as a feasible investment. At present, it remains in a very difficult situation.”
Constantinou, the Hellenic Investment analyst, maintains that Cyprus Airways’ announcement that it will return a profit in 1998 should not give anyone reason for hope in the future.
“Cyprus Airways has a monopoly on the routes it operates. So a profit in 1998 should not be made a big deal of,” he said. “Only when deregulation sets in shall we have a clear picture of the company’s performance.”
