Cyprus Airways ceases operations after an order to repay state aid - but is it over?

Last week, Cyprus Airways, the island’s national carrier, was shut down after a European Commission decision ordered the company to repay more than 65 million euros it received in illegal state aid.   On Wednesday, the state’s Council of Ministers approved a proposal tabled by the Ministry of Finance, to proceed with acquiring the services of advisors in order to set up the new airline, which will use the logo and name of Cyprus Airways.

The European Commission’s decision marked the end for the financially struggling airline which performed its last flight on Friday, January 9. Cyprus Airways, founded in 1947 and 93.67% owned by the Cypriot state, was in dire financial situation since 2007. Cyprus Government had stepped in several times, to offer fiscal and financial support to the company.

In 2007, the Commission authorised a restructuring aid package worth €95 million in favour of Cyprus Airways.  Four years later, the company received state aid of €20 million in the form of compensation for losses incurred as a result of the illegal ban imposed by Turkey on Cyprus aircrafts flying through its airspace. The scheme was approved by the Commission as exceptional occurrence pursuant to Article 107(2)(b) of the Treaty. In 2012, Cyprus injected capital worth €31.3 million into the airline and a rescue aid was notified to the Commission for the amount of €73 million. In 2013, Cyprus notified a €102.9 million aid package, to restructure Cyprus Airways. The Commission opened an in-depth investigation to assess these measures.

Following its investigation, the European Commission concluded that the restructuring aid package for Cyprus Airways was in breach of EU state aid rules and that it gave the airline unfair advantage over its competitors. Under the “one time, last time” principle, a company can only receive restructuring aid once over a period of ten years, unless it proves the existence of exceptional and unforeseeable circumstances. The European Commission was not convinced that such circumstances existed for the Cypriot airline.

“Cyprus Airways has received large quantities of public money since 2007 but was unable to restructure and become viable without continued state support….injecting additional public money would only have prolonged the struggle without achieving a turn-around,” EU Competition Commissioner Margrethe Vestager stated.

Anticipating the European Commission’s decision, the Cypriot government acquired the rights to both the name and logo of Cyprus Airways for €1.2 million last month. Following the demise of the national carrier, the government started putting in place plan B. The Council of Ministers on Wednesday essentially decided to proceed with the privatisation of the emblem of the “flying mouflon” and the name “Cyprus Airways”. The only condition set by the Council was for the new company to have its basis in Cyprus. The deputy government spokesman, Viktoras Papadopoulos, told the press that the setting up of a new airline is considered urgent for the government, in order to ensure that the logo’s value will not decrease, as well as to safeguard the island’s connectivity.

Several airlines stepped in to fill in the gap and profit from the market vacuum left by Cyprus Airways. Only four days after the national carrier closed down, Aegean Airlines and Romania-based low cost airline Blue Air announced substantial expansion in operations to and from the island. 

In addition, Ryanair’s chief marketing officer, Kenny Jacobs, stated that the Irish company will continue with its plans to apply to the Cypriot Government for an airline operator’s certificate (AOC), in order to be able to take advantage of Cyprus bilateral agreements with third countries, such as countries of the Middle East.

Whether or not there will be actual private interest for Cyprus Airways and its flying mouflon, remains to be seen.