Cyprus Airways Facing Emergency Reorganisation

by Lorys Charalamabous, Tax-News.com, Cyprus

11 August 2004

Now that Cyprus has joined the European Union and is subject to all the rules of the acquis communautaire, it is having to bite some unpleasant bullets which it has been dodging for years, such as the liberalization of the telecommunications market and - in the firing line this week - putting Cyprus Airways on a secure financial footing.

Most EU governments have found that maintaining a state airline is impossible, because highly unionised airlines are politically prickly, yet more financial support is ruled out under state aid rules. Privatisation becomes the only acceptable escape route, so that job losses can be blamed on the private sector.

Cyprus is still hoping to avoid privatisation, and Finance Minister Makis Keravnos has asked the board of Cyprus Airways to go ahead with a controversial rescue plan that would involve staff cut-backs, warning that if no sacrifices are made then all employees could end up on the street.

The airline lost CYP 20m last year, compared with total operating costs of CYP 160m, and the plan would put it back into the black by the end of 2006. “In order for the company to stay alive and so that not all staff will end up on the street, it will be necessary for some to leave,” said the Minister.

Communications and Works Minister Haris Thrasou revealed last Friday that there were people in Cyprus Airways being paid CYP 9,000 a month, and that this was not an isolated figure. The plan to save the company, which will run out of cash by November, foresees redundancies, outsourcing, fleet reductions and axing of routes. It provides for staff reductions of nearly 200, with hundreds of others in line for pay cuts of five per cent and a two-year wage freeze, along with cut-backs in fringe benefits, which are widely perceived to be excessive.

Cyprus unions however have a rather adversarial relationship with employers, and pilots' union PASIPY has already said there is nothing in the plan that would even warrant the start of a dialogue. SIDIKEK-PEO, another of the airline’s unions, says it is unfair to blame staff for the company’s financial travails, but that it was ready to discuss the implementation of “reasonable” measures to improve the airline’s finances such as increasing productivity. “However it is not possible for us to accept the suppression of basic terms of employment as provided for in the collective agreements,” the union said.

If the unions are intransigent - unfortunately all too likely - the government may be forced into privatisation on bad terms, since US-style Chapter 11 insolvency is not an option in Cyprus. 'In the end,' comments the Cyprus Mail, 'privatisation might be the only way of securing the survival of Cyprus Airways in some shape or form if the unions refuse to accept the necessity of making a few small sacrifices to save their company.'

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