A number of investors from Cyprus, Greece and Russia have shown serious interest to bid for bankrupt charter operator Eurocypria because of its efficient operations and good reputation in the travel industry, raising hopes that nearly 110 of its ground and flight crews could be rehired under a new structure and start flying in early 2011.
Aviation and tourism analysts told the Financial Mirror that Eurocypria could operate out of multiple hubs in Cyprus and abroad and serve specific markets, helping to turn around the company and even show significant profits within five years.
These prospects, as well as a business plan that has reportedly been doing the rounds with investors, have vindicated the previous board that resigned after the government, under pressure from opposition parties and from Cyprus Airways, did not heed to advice that would have saved the airline a long time ago.
“There is business if it is allowed to do business freely,” a former board member said, adding that all past efforts were geared at shielding Cyprus Airways from potential bankruptcy and not helping Eurocypria increase its earnings.
The problem dates to nearly a year ago when the Christofias administration started dragging its feet over a fleet renewal programme for Eurocypria, obliging former chairman Eleftherios Ioannou to resign in June when he realised he would not get any state support. Opposition DISY accused the government of covering up a scandal that involved an injection of 35 mln euros, but failed to come up with alternative proposals that would keep the airline flying and continue to serve island’s tourist market.
“At the time of its closure (in November) Eurocypria just about had enough cash to pay the month’s salary and 13th bonus to its staff,” the board member said, speaking on condition of anonymity.
“We knew all along that both in Greece and in the U.K., we could compete with other low-cost carriers taking traffic not only to Cyprus but to third destinations as well. One such proposal came from a reputable tour operator in Greece who wanted to set up an alternative hub in Crete and operate along the highly profitable Larnaca-Athens-Thessaloniki triangle.”
“We even had an offer from a former associate in Poland who wanted to invest and base two aircraft in Warsaw,” the source said, adding that apart from lower operating costs, Eurocypria also had another advantage over Cyprus Airways in that the ECA fleet of Boeings was more suitable to operate to and from Scandinavia, compared to CAIR’s heavier Airbus fleet.
SHORT-LIST BIDDERS
Chris Iacovides, a director at Corporate Recovery and Insolvency Group who was appointed administrator a month ago, confirmed the large number of bidders report in the media and said that his obligation was to maximize the returns for the company.
“The more bidders, the better, as we can get a higher price,” Iacovides told the Financial Mirror, adding that the company’s biggest asset was its goodwill, reputation and brand name. “It is not my duty to evaluate or comment on any business plan, but rather to get the best possible deal.”
Iacovides said that copies of a business plan have only been given to those who have signed non-disclosure agreements and added that responses and decisions could be made as early as this week.
Bidders so far include various investors in Cyprus, including Archbishop Chrysostomos II, as well as entrepreneurs from Greece and Russia, with the latter two groups seen as being the most serious. The prelate of the Church of Cyprus, known for his shrewd and businesslike approach in matters involving church assets, said he was also keen to help the 300 staff and crew who were made redundant but given empty promises by the government that they would be rehired.
A business plan suggests that a revived Eurocypria with an efficient management team could rake in as much as 30 mln euros in profits over the next five years, a prospect that has made it attractive to potential buyers. Under the business plan, the airline would start with a fleet of two, gradually growing to four aircraft over a period of two years.
An investor from Russia or Greece would also be able to overcome the obstacle of flying around Turkey on routes to the CIS costing both Cyprus Airways and Eurocypria some 29 mln euros in additional fuel costs over the years.
CAIR LOSSES
Industry analysts expect CAIR’s losses to rise to EUR 40 mln early in the New Year if compounding costs such an increase of EUR 6-7 mln in higher fuel rates and an expansion of the payroll due to the COLA automatic wage indexation system are taken into account.
"We have to adopt policies in all areas to reduce our costs and increase revenues. That is the general approach," a company official said last month.
Finance Minister Charilaos Stavrakis had told parliament the national carrier was set for a 30 mln euro loss this year and its viability was a cause for concern.
In August, the airline posted a first-half loss of 25.1 mln euros, hit by disruption from the volcanic ash cloud and Greece's financial crisis.
Cyprus Airways has suffered from cheaper private operators nipping at its heels, particularly low-cost operators like easyJet and Monarch on previously lucrative British routes, with Ryanair operating new routes from central Europe and the recently merged Aegean/Olympic venture aiming to capture a greater market of the Cyprus-Greece route.
It underwent extensive restructuring in 2006 and 2007, when it shed a fifth of its workforce and staff took pay cuts. Part of that restructuring involved spinning off charter subsidiary Eurocypria and selling it to the government for 23 mln euros. Three years on, Cyprus went to the European Commission last week suggesting the companies be merged. The plan was blocked and the European Union urged authorities to liquidate Eurocypria, prompting the charter operator’s staff and crew to stage four days of strikes across the island.
CAIR recently reduced staff numbers in Paris and Athens, and outsourced services in Amsterdam, Brussels and Zurich.
The opposition has called for a full privatisation of the company or the government abandoning its 70% stake in the airline.
