The Board of Directors of Cyprus Airways initiated procedures at the end of last week to place the embattled national carrier in voluntary liquidation at the end of last week resulting in the suspension of all of its air services from January 9, 2014.
The closure of the carrier follows a ruling from the European Commission that the Cypriot government had breached rules on support for struggling companies when it offered state support to the ailing carrier between 2007 and 2013 and that the carrier must repay over €65 million of illegal state aid.
The European Commission undertook an in-depth investigation into Cyprus Airways after the government in Nicosia had repeatedly approved state aid packages to the airline. It said its findings were based on unrealistic assumptions, had failed to address the cause of the airline's difficulties and were taking longer to implement than EU rules permitted.
Existing EU rules do not prohibit governments providing aid to a business but limit any aid to a single injection of aid to support a restructuring process once within a period of ten years. The rule is intended to prevent companies becoming reliant on government support and gaining unfair advantage over rivals. This is known as the "one time, last time" principle.
“We are extremely honoured to have made a valuable contribution, over the last 68 years, to the development of the economy of Cyprus and its tourism industry in particular. We have flown the flag of our country worldwide with pride.”
“We are extremely honoured to have made a valuable contribution, over the last 68 years, to the development of the economy of Cyprus and its tourism industry in particular. We have flown the flag of our country worldwide with pride.”Cyprus Airways
In its ruling, the EU said companies need to be profitable based on own merits and their ability to compete and cannot and should not rely on taxpayer money to stay in the market artificially. It concluded that a restructuring aid package of over €100 million gave the company an undue advantage over its competitors in breach of EU state aid rules.
“Cyprus Airways has received large quantities of public money since 2007 but was unable to restructure and become viable without continued state support. Therefore, injecting additional public money would only have prolonged the struggle without achieving a turn-around,” said EU Competition Commissioner Margrethe Vestager.
Cyprus Airways was established almost 70 years ago in September 1947 as a joint venture between the Colonial Government of Cyprus, BEA (British European Airways), and private interests. It launched passenger operations in April 1948 with a small fleet of three Douglas DC-3s. It was 93.67 per cent owned by the state and at its closure operated a fleet of six Airbus A320s. Four of these aircraft were ferried to St Athan in Wales on January 11, 2015 for temporary storage.
Unlike many airline closures the Cypriot government has been offering alternative arrangements for passengers booked with the carrier and has appointed a local travel agent, Top Kinisis Travel, to handle the initially fall-out from the closure. “The Republic will undertake fully the cost of the alternative flights and therefore the passengers will not be burdened in any way,” it said in a statement.
The airline’s closure followed many failed attempts to find a sustainable future for the business and unsuccessful talks to find a new investor. It has faced significant competition in recent years as foreign low-cost carriers introduced flights to the Mediterranean Island and other established carriers boosted their own activities from Larnaca and Paphos.
Our chart, below, highlights how Cyprus Airways has downsized it activities over the past ten years with its network capacity last year falling to its lowest level in many years. This has seen its route map decline from 40 destinations in 2008 to just 16 destinations last year.