The South Cyprus government will be providing €5.6m to ailing national airline Cyprus Airways (CY), it emerged yesterday.
According to yesterday’s ‘Politis’, cabinet approved a proposal on Wednesday to provide the national carrier with the €5.6m in payments throughout the year, representing the sum that CY is expected to lose in 2013 from extra fuel costs as a result of the ban on Cypriot traffic over Turkish airspace.
EU approval was granted to the previous government in 2011 to provide the national carrier with compensation for the Turkish airspace ban, which violates the customs protocol signed between Turkey and the EU, and most likely the rules on fair competition.
Following on, the EU approved a system to calculate how much extra fuel was needed by CY planes to circumvent Turkish airspace. This intervention is not regarded as a violation of the EU’s state aid rules.
The first time the formula was used, the government came up with a €20m sum in compensation for the years between 2004, when Cyprus joined the EU, and 2010.
According to a source, the figure was not at all arbitrary but calculated in agreement with the EU, depending on the number of flights that would normally go over Turkey, and the extra fuel needed to circumvent Turkish airspace. The ban particularly affects flights to and from Russia from Cyprus.
The source said the formula was clearly a calculation based purely on fuel usage, and did not take into account commercial aspects like loss of customers due to the unfair competition, or extra maintenance costs as a result of greater usage of the fleet.
Following the lump sum given for the 2004-2010 period, around €5m-€6m was given out in compensation for the ban each following year.
However, instead of giving compensation for 2013 next year, after calculating the full cost of the ban on the airline, the company asked that cabinet give the money in advance.
Cabinet agreed to do so, and will distribute €5.6m in parts throughout the year, suggesting the company may be facing liquidity problems.
The company is due to present its medium-term new restructuring plan to the EU in Brussels on July 22. The European Commission will, in the process, examine the charge against Cyprus of unlawfully providing state aid to the airline.
In the meantime, CY has already begun implementation of its redundancy scheme which will see 490 staff made redundant, from the over 1,000 employees on the payroll at the start of the year.
On June 17, board chairman Antonis Antoniou sent redundancy letters to 203 staff members. A similar figure will receive redundancy letters within two months while the remainder from the 490 earmarked for the sack have already opted for voluntary redundancies.