Eurocypria safe for now but future still in the balance

If you want to hear the latest news from Cyprus, whether it’s good, bad or just an interesting fact about what’s happening on the island, then tune in to our weekly news blog. The team at Cyprus Property World will be scanning the most authoritative English-language newspapers and websites, such as the Cyprus Mail and the Financial Mirror and the Cyprus News Agency to keep you in touch with what’s going on. It won’t just be property news, but any kind of news for those interested in Cyprus.

Eurocypria safe for now but future still in the balance

STATE-OWNED airline Eurocypria appears to have passed the first of two crucial survival tests, by retaining its operating license at a meeting of the Air Transport Licensing Authority (ATLA) yesterday.

ATLA Chairman Makis Constantinides, who is also Permanent Secretary at the Communications and Works Ministry, told the Cyprus Mail yesterday that he could not comment publicly on what was discussed at the meeting, but emphasised that “there is nothing to announce from the meeting”. Given that Eurocypria entered the meeting with a license, one is led to assume that it left the meeting with its license intact.

The second crucial test still remains. The ATLA meeting was called due to its obligation under EU Regulation 2407/92 to assess the financial performance of any air carrier licensed by it, with the power to “suspend or revoke the licence if they are no longer satisfied that the air carrier can meet its actual and potential obligations for a 12-month period”.

Eurocypria was sold by national carrier Cyprus Airways (CY) to the Government of Cyprus in June 2006 for around CY£13.4 million (€22.9 million), mainly to provide a cash injection to CY. Since then, the airline has been experiencing a number of difficulties. In June 2007, Eurocypria was forced to lease crewed planes from outside after being grounded by Civil Aviation for not having enough staff to operate under international regulations.

Although profitable at the time of the sale, the airline declared a €2.5 million loss in 2007 and a €10 million loss in 2008. Press reports have suggested that in addition to a current-year loss rumoured to be €10 million, Eurocypria is carrying accumulated losses of the order of €20 million as well as €22 million debt. Reports have also suggested that the airline is due to make a €8 million debt payment next month. Eurocypria Executive Chairman Lefteris Ioannou said yesterday that “these figures are not correct”.

Today, the nominal value (paid-up capital) of Eurocypria shown in government accounts is €8,550 (equivalent to CY£5,000). Ioannou said that this is “a laughably small amount for a company with a €100 million turnover”. He said that the airline “took out loans [in early 2009] in anticipation of an injection of capital” by its owner, the state.

To justify such a capital injection, both Eurocypria and outside consultants have submitted studies on the airline’s economic viability, and Ioannou is confident that it will be approved, “now that we’re standing on our own two feet”. The fact that there has not been an announcement from ATLA to revoke Eurocypria’s license suggests that it shares Ioannou’s view.

Civil Aviation Director Leonidas Leonidou told the Cyprus Mail yesterday that the issue of whether government investment is allowed under EU law “is a matter for the government”. However, Constantinides said that an injection of capital is legal under EU competition rules.

Finance Minister Charilaos Stavrakis was attending the EU Finance Ministers’ (ECOFIN) meeting in Luxembourg yesterday, so was unavailable for comment. In January this year, Stavrakis said that the airline was too important to the national economy to be allowed to go under, as it was responsible for bringing some 300,000 tourists to the island every year – around 15 per cent of arrivals.