news.am, Armenia
Aug 26 2011
Armenian national carrier has `too Russian’ directors – WikiLeaks
August 26, 2011 | 15:41
Completely reversing its previous investment policy, Armenia’s main
flag carrier, Armavia Airlines, is halting its plans to expand towards
Europe. The company plans to move to European standards and is
replacing its modern aircraft with older Soviet models in an effort to
reduce costs, reads the cable released by WikiLeaks. Armenian
News-NEWS.am posts the cable.
`The move is a breach of Armavia’s agreement with the Government of
Armenia and is a vote of no confidence in the commercial viability of
a modern airline servicing European routes from Yerevan.
Bob Chaplin, a British consultant who has been managing Armavia, told
us that Armavia’s directors have decided that the investments
necessary to expand Armavia’s service to European cities were not
justified. Specifically, he said that they were unwilling to accept
losses in the initial years of investment and preferred to pocket the
earnings from cheap but profitable point-to-point flights in the CIS.
According to Chaplin, for the moment Armavia will continue to operate
its current European flights to Frankfurt and Amsterdam in order to
avoid forfeiting its exclusive licenses to the routes, for which the
company paid USD 14.5 million. Chaplin noted that these routes will
remain profitable through summer, but after that he expects that
Armavia will probably try to sell the licenses or liquidate during
next winter.
The sudden reorganization of Armavia’s assets signals a clear exit
strategy from the European routes. Armavia will transfer three of its
five Airbus 320s to Siberian Airlines in Russia and replace them with
old Soviet planes that are not allowed to land in European Airports.
(Note: Siberian Air owns a controlling share of Armavia Airlines)
The airline has also halted negotiations with Lufthansa on interline
connections through Frankfurt and have withdrawn their bid for
International Air Transport Association (IATA) certification.
`The directors are too Russian,’ Chaplin told us when asked why
Armavia had failed in its plan to become a western airline. The
expense of meeting European standards had proven to be far more than
the directors anticipated or were willing to bear. He higlighted as
examples the fact that the directors refused to fly scheduled flights
when they were not full, refused to contract an attorney to negotiate
interline agreements, and refused to open their aircraft and their
books to inspection by third parties.
Armavia’s withdrawal from its strategy puts it in breach of several
investment conditions of its contract with the GOAM: it is not yet
clear how the government will react, however. In case of a material
breach the government has the right to cancel Armavia’s licenses and
resell them to another airline. According to Viktor Mnatsakanian, the
legal advisor to Minister of Justice David Harutunyan, the Minister is
aware of Armavia’s move but the government has not yet taken any
decision on how to respond.
If the GOAM were to revoke Armavia’s licenses it could exacerbate the
situation considerably: Armavia’s USD 14 million loss would likely
send danger signs to potential investors. The reversal of Armavia’s
strategy is a serious blow to Armenia’s civil aviation industry,
suggesting that Armenia cannot support an airline that meets modern
Western standards and depriving a land-locked country of vital
transportation links.’
From: Baghdasarian