Armenia Aviation up in the Air

Institute for War and Peace Reporting (IWPR)
June 2 2004

Armenia Aviation up in the Air

After a string of managers and failed projects Armenia’s national
airline is formally bankrupt.

By Rita Karapetian in Yerevan (CRS No. 236, 02-Jun-04)

The clue to the state of Armenia’s civil aviation industry can be
found in Equatorial Guinea, where six Armenian pilots are expected
to stand trial shortly, accused of spying and plotting a coup d’etat.

The pilots deny these charges, and the Armenian government claims
that they were in the area for perfectly innocent reasons. Foreign
ministry spokesman Gamlet Gasparian said that dozens of Armenian
pilots are being forced to find work in Africa because the state
aviation company Armenian Airlines, AA, has been declared bankrupt
and is facing a Russian takeover.

The company’s management now has just over a week to present a recovery
package to the Armenian economic court by June 12, or it will face
certain liquidation.

Opposition politicians and industry analysts are furious. “Smart
operators from the aviation industry with government support have
ruined a whole strategically important sector of the economy,” said
Dmitry Adbashian, a former AA director, who now runs the National
Aviation Union.

Most of the company’s employees have since lost their jobs and
income. According to Marietta Kazarian, head of the airline’s legal
department, the number of company employees has dropped from 1,500
to 100 people.

“Of the 300 members of the flying team, only around 30 have secured
jobs with different airlines; the rest are looking into opportunities
abroad, ” said Kazarian.

For many pilots, this could be the end of the road. “I am too old
to change my profession and start again from scratch, but I am too
young to retire,” said 51-year-old pilot Genrikh Pogosian.

According to Arsen Avetisian, general director of AA, the company
owes its staff ten months’ wages – around 250,000 US dollars in all.
“The court has decided that debts will mainly be repaid after the
company property is sold,” he told IWPR, adding that the exact scale
of the firm’s debts would only be made clear when the liquidation
process begins, but it is estimated to be between 12 and 30 million
dollars. Some opposition figures are alleging that the bankruptcy
has been deliberately planned. “Since 1998 the authorities have
been carrying out a policy of artificial bankruptcy for AA,” claimed
parliamentary deputy Tatul Manaserian.

“Debts have mounted up so as to artificially lower the price of this
company, which many people want to get their hands on,” he added.

Justice minister David Harutiunian rejected this charge, but
did concede that there had been “serious mistakes in the company

Armenian Airlines was founded in 1993 and given the status of national
carrier. The company inherited highly qualified staff, a mass of
equipment and 23 planes.

Former director Adbashian said he had drawn up plans to make the
airline, as well as Zvartnots airport and the state-run refuelling
company GSM, commercially competitive. But he was sacked and his
programme was not implemented, something which he said “pushed civil
aviation towards collapse”.

The company has been in financial crisis since 1998. AA lost out both
to competitors and to other state companies, and the fuel supplied by
GSM was expensive. Opposition parliamentary deputy Agasi Arshakian said
that GSM used its monopoly “to sell one tonne of aviation kerosene
at a price which was 100 dollars higher than the average price in
the region.”

Trade union leader Garik Mkrtchian says that a heavy blow came with
the transfer of Zvartnots airport to the management of Argentinian
businessman Eduardo Ernekian.

According to an agreement signed at the beginning of 2003, Ernekian
pledged to invest up to 100 million dollars in reconstruction and
development of the airport over 15 years. But in practice, almost
immediately after it took over the management, Ernekian’s company
increased prices on fuel, plane parking and ground service.

AA has also suffered from having 15 general directors over the course
of a decade, most of whom were not industry specialists.

“General directors who presided over mounting company debts were
replaced one after another, but no one was sacked or made to answer
for this,” AA manager Ashot Berberian told IWPR.

In March last year, the Armenian government took a decision to transfer
ownership of AA to the private Russian airline company Armavia. After
nearly 70 per cent of Armavia’s shares were sold to another Russian
company, Sibir-Avia, that company then took a controlling stake in AA.

Opposition politicians are outraged. “Armavia cannot be the national
carrier, as the controlling shareholding belongs to Russian business,
and the rest of the shares belong to a Russian citizen,” said

Another deputy, Grant Khachatrian, believes that the takeover threatens
the sovereignty of landlocked Armenia, which has two closed borders
because of the Nagorny Karabakh conflict.

But the government maintains that the sell-off makes commercial
sense. Justice minister David Harutiunian said, “The state is a bad
businessman – only privatisation can guarantee the profitability
of aviation.”

Rita Karapetian is a correspondent for Noyan Tapan news agency
in Yerevan.