WHO WILL BUY ARMAVIA?
Vestnik Kavkaza, Russia
April 3 2013
by Susanna Petrosyan, Yerevan. Exclusively for Vestnik Kavkaza
Armavia, the national airline company of Armenia, stopped flights and
went bankrupt on April 1. “The company’s owner has been allocating
funds from other areas of business to maintain development of
the company in the last three years. But today, the situation has
changed in such a way that such actions can no longer continue, so
it was decided to stop flights and start the bankruptcy procedure”,
the official statement of Armavia says. Money for tickets sold will
be paid back.
Armavia is owned by Mikhail Bagdasarov, a friend of President Serzh
Sargsyan and one of Armenia’s largest entrepreneurs.
The bankruptcy of the company was predicted a year ago. The
International Airports of Armenia Company (owner of the Zvartnots)
servicing Armavia was cancelling flights occasionally due to a debt
of 5 million euros. Cancellations and delays of flights were a problem
for Armenian aviation as a whole.
Bagdasarov said that the company would go bankrupt unless the Zvartnots
owner reduces service fees by 25%. The airport’s press service
responded by saying that “the service fees had been the same for
three years. “No changes in fees at the airport have been made in the
last few years, the price for fuel depends on the prices set by Mika
Limited, a company belonging to Bagdasarov. Concerning fuel prices,
there is a state-regulated margin that depends on wholesale prices
and the airport cannot exceed the margin when supplying Armavia”.
The company’s owner lacks logic in the economic situation. Bagdasarov
expressed no grievances about the airport’s prices during some of
the hardest years of 2009-2010. On the contrary, he insisted that the
global recession had brought Armavia benefits, the company purchased
a set of flight routes from large airline companies and planes from
bankrupt companies.
In 2012, the economy started going uphill and the owner of the national
airline company suddenly started demanding a reduction of prices. So
how did the company with a monopoly that had been surviving the most
recessive times suddenly end up bankrupt? Specialists say that even
a monopoly does not allow Armavia to work efficiently.
“The causes of Armavia’s bankruptcy are many-sided. The main reason
is provincial greed” You cannot grant a man a whole industry when
he has no assets in such a business. Everything was leased. Such a
policy is aimed at doubling, robbing and giving nothing in return,”
Shagen Petrosyan, former head of the State Directorate for Civil
Aviation of Armenia, stated.
Petrosyan does not believe that the expenditure of the air company
exceeded its income: “The industry has always been profitable
and the company has been accumulating debts for 10 years, ending
up on the brink of bankruptcy as a result of improper fee policy,
choice of routes, poor business plans and purchases of planes under
disadvantageous conditions. Armavia offers services at exaggerated
fees, compared with some European and Middle Eastern companies and
even the companies of Tbilisi.”
A year ago, Armavia staff started a strike and the company failed
to make flights to Russia, using the high fees of Zvartnots Airport
as an excuse. It was later revealed that the Russian Federal Air
Navigation Service had banned flights of Armavia to Russia due to
debts. The company paid them off and renewed flights. Armavia owes
Russian airports about 45 million rubles. In addition, it needs to
pay Russian banks over $20 million.
In 2000, Armenian Airlines became the first state-owned air company to
go bankrupt. The company had an income of $5 million a year. According
to some data, the company went bankrupt through a corrupt scheme. It
was made bankrupt to give Defense Minister Mikhail Bagdasarov a
route for promotion. He became the owner of the newly-formed company
Armavia. The government believed that a private owner would boost
the airline industry, although it has never happened.
According to unofficial information, the Armavia owner was negotiating
the sale of the company to foreign investors. There are no Russian
buyers, but there are purchasers from Italy, Australia and the East.
Taking into account Armenia’s characteristics and the topicality of
corruption schemes and the fact the aviation was a juicy piece of the
“economic pie” of Armenia, a new private owner may appear, promising
to solve all the problems of aviation.
The deal between Armavia and the government expires on April 22. Some
specialists propose appointing a government official, forming a
commission to analyze the bankruptcy caused before liberalizing
the industry.
James Akopyan, an observer of Lragir, expresses confidence that both
the government and the parliament should work on the case and form
a commission as soon as possible to investigate the problems of the
strategic field of air transportation.
http://vestnikkavkaza.net/analysis/economy/38805.html