Cyprus & World News

AVIATION: Ryanair, Aegean, Arkia top Cyprus Airways shortlist

04 September, 2014

Nine airline companies and investment funds have submitted non-binding business plans to take over the government’s 94% stake in ailing Cyprus Airways (CAIR), burdened with high costs, a shrinking network and dropping passenger numbers.

Communications Minister Marios Demetriades confirmed on Thursday that nine companies responded to the procedure initiated by his Ministry, from the 15 that initially expressed interest, including Greece’s Aegean Airlines that recently merged with Olympic, low-cost giant Ryanair that wants to establish a regional hub and Israel’s Arkia Airlines that operates five flights a week to Larnaca.
Other bidders reportedly included Air Aruba, the Canadian venture firm Triple Five, as well as fund managers, while Russia’s S7 and Romania’s budget airline BlueAir dropped out.
“We are now at the second stage of the procedure to find a strategic investor,” Demetriades stated after submissions closed on Wednesday and his team of consultants started assessing the bids.
The Minister added that in the third stage, the short-listed companies will be asked to submit binding proposals.
The goal, Demetriades added, is to have a strong, local airline company, which will serve the country’s passengers and will employ as much personnel as possible.
Commenting on criticism about “selling out” Cyprus Airways, the Minister noted that without a strategic investor, the company will be forced to shut down in the medium term.
Attracting foreign investors should be a main objective, Demetriades said, while noting that the interest shown by foreign companies for the state-owned airliner is a sign of confidence returning towards the country’s economy.
Having rejected the idea in July, low-cost carrier Ryanair boss Michael O’Leary was back on the island in late August to submit a comprehensive package that would include buying all or part of CAIR, as well as setting up a regional hub at both Paphos and Larnaca airports.
Ryanair and Greece’s Aegean Airlines, that submitted a separate non-binding bid on Monday, were 15 of the potential investors shortlisted to submit non-binding offers by August 29.
O’Leary said after meeting Transport Minister Marios Demetriades in Nicosia that with the help of the Irish low-cost airline, CAIR could get back on a path of rapid growth with new routes and more flights, with passenger numbers rising from the present lows of 600,000 to 3 mln in a few years.
“We hope that by the end of September, beginning of October we will come up with the best solution,” Demetriades had said. The whole procedure might be concluded before the end of the year, he added after a separate meeting with Aegean’s officials.
Ryanair’s CEO had been critical of the high rates charged by airports operator Hermes, suggesting Cyprus landing costs were “very expensive” and even double that of, say, Berlin.
The main requirements attached to the potential sale is that any new investor maintain the brand name and Cyprus as the operational base. CAIR is no longer eligible for any other assistance as it has already accumulated some 100 mln euros in state grants and government guarantees, something which is being scrutinised by European Commission regulators.
Meanwhile, the Financial Times sees Ryanair’s takeover as a positive development as it would open up new routes and create more hubs in the Mediterranean.
The newspaper reported that Ryanair has not made an acquisition of a rival since it bought Buzz more than a decade ago, and that O’Leary has frequently disdained the takeover approach to expansion. However, that has not stopped him from laying prolonged siege to Aer Lingus, in which Ryanair owns a stake of nearly 30% but blocked by regulators and the Irish government.
The FT further quoted analysts as saying that “any purchase of Cyprus Airways could make long-term sense as Ryanair sought to fulfil its aim of lifting passenger numbers to 1.2 mln, within five years. The Cypriot airline has just six aircraft, while Ryanair has 180 new Boeing 737 aircraft on order, the first of which are due to be delivered later this year.”
The Financial Mirror has commented in past editorials that it was a mistake of the previous administration to shut down low-cost charter operator Eurocypria and keep the loss-making CAIR afloat, simply because of the voting power the airline’s staff and their families exerted on political parties in Cyprus, that are known to be spineless and very often succumb to union bullying tactics.