Cyprus Airways the national air carrier of Cyprus closed down due tothe decision of the European Commission to ask theCypriot governmentto recover incompatible aid from the transport company.
The last Cyprus Airways flight tookplace on Friday night andFinance Minister of Cypus, Harris Georgiades told reporters on 9 January:"The company has ceased being a viable entity ... and cannot continue to operate." According to Reuters, both Ryanair and Greece's Aegean Airlines, which have taken market share away from Cyprus Airways, have submitted applications to Cypriot authorities to create subsidiaries on the Mediterranean island.
Commission's Decision
On Friday the European Commission announced that following an in-depth investigation, the EU bodyhas concluded that a restructuring aid package of over €100 million for Cyprus' ailing flag carrier Cyprus Airways gave the company an undue advantage over its competitors in breach of EU state aid rules. Cyprus Airways therefore needs to pay back all incompatible aid received, which according to the Commission's information amounts to over €65 million plus interest. In particular, the Commission found that Cyprus Airways had no realistic perspective of becoming viable without continued state subsidies.
Commissioner Margrethe Vestager, in charge of competition policy, said: "Cyprus Airways has received large quantities of public money since 2007 but was unable to restructure and become viable without continued state support. Therefore, injecting additional public money would only have prolonged the struggle without achieving a turn-around. Companies need to be profitable based on own merits and their ability to compete and cannot and should not rely on taxpayer money to stay in the market artificially."
The Commission found that Cyprus Airways had been in economic difficulties for many years and repeatedly benefitted from public support measures:
- In September 2007, the Commissionauthorised a restructuring aid package worth €95 millionin favour of Cyprus Airways.
- In December 2012, Cyprus notified to the Commission €73 million rescue aid for the airline. Several tranches of this loan amounting to in total €34.5 million were paid out in breach of Cyprus' obligation to await the result of the Commission's state aid scrutiny. In 2012, Cyprus also granted a capital injection worth €31.3 million to Cyprus Airways. The Commission opened anin-depth investigation into this measure and the 2012 capital injectionin March 2013.
- In October 2013, Cyprus notified to the Commission a €102.9 million aid package to restructure Cyprus Airways. The package included the €31.3 million capital injection mentioned above, a conversion of debts into equity amounting to €63 million and €8.6 million to cover the deficit of the company's Provident Fund, an employee benefit scheme. The Commission opened anin-depth investigationin February 2014 to assess the measures.
Under the applicableEU guidelines on the rescue and restructuring of companies in difficulty, a company can only receive restructuring aid once over a period of ten years ("one time, last time" principle). This is to avoid that market players rely on public money instead of running an effective business and competing on the merits. Cyprus has provided no evidence that Cyprus Airways faced exceptional and unforeseeable circumstances that would justify an exemption from this principle.
The Commission also found that Cyprus Airways' restructuring plan is based on unrealistic assumptions and does not sufficiently reflect different market scenarios.The proposed restructuring measures do not appear appropriate to address the circumstances that led to Cyprus Airways' difficulties. Moreover, the proposed restructuring period is longer than what the Commission has authorised in other airline restructuring cases.
Finally, in order to avoid the moral hazard of bailing out inefficient players with taxpayer money, under EU state aid rules any company that receives restructuring aid has to sufficiently contribute itself to the cost of restructuring. The Commission found that Cyprus Airways' own contribution is significantly below the level of 50% required by the guidelines.
For all these reasons, the Commission concluded that Cyprus Airways was unable to become viable in the long term without continued state support.
http://www.neurope.eu/article/end-cyprus-airways