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ArmInfo’s Interview with Izabella Muradyan, Deputy Chairperson of the Air Transport Policy Sub-Committee of Armenian Public Council
by Elita Babayan
The numerous stories related to the problems of the national air carrier Armavia, which are still vague for the public and sometimes scandalous, have recently been marked by new developments. The air carrier had to account to the VTB Bank for the failure to properly perform its obligations. The Bank demanded that the company should redeem a 22 mln USD debt. This is a loan provided to the air carrier for acquisition of the first Sukhoi SuperJet 100 aircraft. In order to clarify the situation around the air carrier, ArmInfo’s correspondent has interviewed Izabella Muradyan, Deputy Chairperson of the Air Transport Policy Sub-Committee of the Armenian Public Council. The thing is that Muradyan and her colleagues in the Council urge the authorities to preserve the Armenian air carrier, even to nationalize it partly or fully.
Mrs. Muradyan, amid the critical comments on Armavia, particularly, on the unprofitable activity of the company, the proposal on nationalization of the company made by you and your colleagues in the Sub-Committee seems somewhat strange. There are many states in the world that lack national air carriers; nevertheless, they make flights…
There is nothing strange in it. It was necessary to do that long ago, or to be more precise, one should not have sold the company completely, because the experience shows that the infrastructure objects of strategic importance for the country cannot be completely private, as this by all means leads to numerous problems for the sphere, the owner and the citizens of the country.
As regards the countries you are talking about, they are either in a stable geopolitical space, e.g. in the heart of Europe, or have recently lost their national air carriers (i.e. they went bankrupt or were acquired by the air giants), or they are extremely poor and cannot (do not want) spend funds on not only an air carrier of their own, but also on national aviation infrastructure and personnel. As for Armenia, there are several circumstances that simply force us to have our own aviation infrastructure. The geopolitical location of Armenia itself, the regional conflicts, mountainous scenery and the harsh continental climate lead to unstable development of land transport carriages and to the air carrier’s seasonality schedule that differs from that estimated in international air carriages.
As it is known, since 1988 till now Armenia has constantly been in transport isolation – the communications through international railways and highways have been blocked completely or partly. At present, the only operating communications are two highways (Georgia, Iran) which are passing through the heavy mountain terrain and are unavailable in case of unfavorable weather conditions, and a branch line of the international railway to the Georgian ports of Batumi and Poti. Under these conditions, the only stable transport facility for passenger operations and cargo carriages is aviation. It carries out the lion’s share of passenger operations and most part of cargo carriages from/to Armenia. It is the aviation that guarantees almost uninterrupted communication of Armenia with the foreign world and ensures the operation of the key segments of international economic cooperation. Thus, I am convinced that the availability of our own aviation infrastructure and national air carrier is not just an economic issue; it is directly connected with the national security.
There will hardly be anyone to dispute your statement. But what shall we do with our air carrier’s debts to Zvartnots Airport? The behind-the-scenes bustle between the airport and Armavia is still green in our minds. The situation around the apparently serious financial difficulties of the national air carrier has not been clarified yet. Who will be responsible for the debts and how did they emerge?
We tackled this problem in October 2012 and informed the public of the real state of affairs in the market of air transportation. To recall, the matter concerned the prices of services and jet fuel in Zvartnots Airport, which are twice and more as high as the prices of services and by 30-40% higher than those of jet fuel in such international airports as Vnukovo, Domodedovo, Berlin, Venice, Dubai, etc. I think the air company’s debts are directly connected with this circumstance. In case of such difference, if the company consumes about 3,000 tons of jet fuel monthly, it acquires a debt worth about 1 mln USD to the airport. One more fact is also unacceptable: the jet fuel is supplied to Zvartnots Airport by the owner of Armavia, who then buys it from the airport at increased prices and has no opportunity to directly provide his own air company with jet fuel (this order was approved by the Government in 2012).
At present it is necessary to revise the issue of the lack of competition inside the airport. And one more important circumstance playing a certain role in the unprofitability of Armavia’s air carriages is the lack of basic tangible discounts for the national air company, which are provided to its competitors in their countries (for instance, in Russia, Ukraine, Italy, etc.) and the discounts reach over 80% (over 50% at the mean).
As regards other debts of Armavia and the persons to be responsible for the debts, we think that first of all it is necessary to prevent new debts by setting up a multilateral commission and involving not only the conflicting parties and the government, but also the public, and make the work of the commission transparent and available for the country’s citizens. We have a fine up-to-date airport built within 10 years, however, its high prices of the services and the jet fuel not only hinder the development of the national air carrier, but also “take” the foreign air carriers (such as British Airways, LOT, Air Baltica, Air Arabia, etc.) out of Armenia, and this actually makes it impossible to fulfill the idea of creation of a Eurasian and intercontinental transportation hub in Armenia.
How is that? The leadership of the airport has repeatedly stated that the airport charges do not exceed 15% of the total expenses of the air company, which is quite acceptable for any air carrier. Meanwhile, you consider these charges to be too high, don’t you?
The thing is that the matter does not concern the purely airport charges at all. The matter concerns the services, which in other airports of the world are provided by other companies on the basis of multiple competition (moreover, the air company serves itself), not by the airport. These are very expensive services – ground handling and fueling (including the fuel provision). According to the specialists’ estimations, the price of the ground handling and the jet fuel constitutes about 47% of the prime cost of air tickets, i.e. the higher the prices, the higher the flight prime cost. In addition, all these problems affect the foreign air carriers flying to Zvartnots.
Can Armavia’s problems ruin our civil aviation system? Can we say that our air service industry is facing a collapse?
Yes, I think the collapse of any of the segments, especially the national air carrier, may cause a domino effect and pull down the whole sector. The tragic death of five Armenian pilots in Congo in Dec 2012 is a telling example of what our aviation industry may face: old planes and hard work in developing countries, mostly in Africa – this is where most of our pilots may find themselves if we no longer have a national air carrier.
The most important thing here is that we live in a war zone, and should we face an emergency, we will need natives, who will work for an idea rather than out necessity. During the Nagorno-Karabakh war some of my colleagues contrived to take as many as 100 people by Yak-40, a plane that can carry no more than 32 people, and each time they faced the risk of being shot down. They saved thousands of people. It was something no foreigner would do for any money.
In Soviet times the civil aviation of Azerbaijan had almost no native pilots, and most of their pilots were either Russians or Armenians.
One more example from the present: our pilots kept evacuating Armenians throughout the civil war in Syria and stopped doing it only recently when the Syrian fighters began blowing up planes. No single foreign pilot agreed to do it. Without a national carrier one can have no national pilots. And a country having no national aviation cannot be regarded as sovereign.
How should the sector develop in order to avoid such a bad outcome?
There are different opinions, but some aspects are obvious: we need a developed airport infrastructure, a national air carrier and national personnel. And we need special institutions and mechanisms for solving these problems. The Chief Civil Aviation Department of Armenia has proved its efficiency as a regulator, but little attention has so far been paid to measures that might encourage the sector to grow. Here we need to follow the international experience and to form a commission or a council comprising not only government officials but also representatives of specialized companies and NGOs, including Zvarnots Airport and Armavia.
Our key challenge today is the continuing conflict between Zvartnots Airport and Armavia and Armavia’s inability to come out of its crisis.
Experts give lots of reasons why Armavia is unable to work properly: no efficient management system, insufficient technological infrastructure, no commitment to perform well and low professionalism of some employees. But they in the company say that before the crisis they also had these problems but still worked at profit.
What is the problem then? Can the government’s interference – more specifically, acquisition of a basic stake in the company - help it to survive?
I think the Government must interfere and must be given no less than 25% + 1 stake in the company - the so-called blocking shareholding. But in order to show you the full picture, I would like to point to some international aspects of this problem. The first thing you will see when examining the situation in our aviation sector is that it is experiencing a general decline.
The website airlines-inform.ru (http://www.airlines-inform.ru/world_airlines/ceased_operations) gives a list of the world’s air companies that no longer exist or no longer fly (mostly from Europe, the CIS and the United States). In the last four years they number has grown from 44 to 158, this including 5 big European companies.
Today we have lots of examples of foreign air companies facing bankruptcy and their governments helping them out. In Sept 2012 the Czech authorities gave Czech Airlines $100mln EUR so it could avoid bankruptcy. In 2011 alone that company lost 241mln CZK (almost $12.2mln). Polish LOT has borrowed from its government 400mln PLN (100mln EUR) for the same purpose. Australian Airlines has debts worth 900mln EUR, so, on Nov 13 one of its shareholders, Austrian ÖIAG started negotiations for selling the company to Lufthansa. They have also asked the Austrian Government to invest 500mln EUR and the latter has agreed. Kuban from Russia, Aerosvit from Ukraine and Estonia Air are facing similar problems.
Thus, we see that Armavia is not the only company facing such problems. Simply in many countries aviation has long been regarded as part of national security and enjoys state patronage.
Serzh Sargsyan was the only presidential candidate who mentioned some of the sector’s problems. While meeting with voters in Kajaran, he said that the authorities were considering restarting the Kapan aerodrome. According to some media, a group of experts, led by the head of the Chief Civil Aviation Department Artyom Movsisyan, visited Syunik region recently so as to inspect all of the local civil aerodromes (Sisian, Goris, Kapan and Meghri). Deno Gold and Zangezur Copper-Molybdenum Combine are ready to sponsor their restart.
Let’s hope that this will become a new page in the history of Armenia’s domestic aviation and that the problems of our aviation industry will be gradually resolved.
Thank you for the interview.