Tuesday, June 17, 2014

Watchdog discloses Serbia-Etihad investment

State Aid regulator reveals aspects of Air Serbia investment

The Serbian Commission for Control of State Aid has disclosed parts of the investment deal the Serbian government and Etihad Airways made in the restructuring of Jat Airways and its transition into Air Serbia, which has up until recently been hidden from the public domain and marked as confidential. The Commission, which had to approve whether the Serbian government’s contribution to the deal is in line with state regulations, found on February 21, 2014 that its financial involvement in Etihad’s minority takeover of Jat Airways (now Air Serbia) fully conforms to state aid policies. However, the Commission’s decision gives insight into some of the government’s obligations as part of the transaction which has been of great interest to the public, primarily due to the secretive nature of the agreement. On August 1, 2013, the Serbian government, Jat Airways and Etihad Airways entered into a series of agreements related to Jat. In total, five agreements were made - Transaction Framework Agreement, Support Services Agreement, Investment Agreement, Consulting Services Agreement and Shareholders’ Agreement. The agreements, which have not been disclosed to the public, envisage wide ranging cooperation between Serbia and Etihad related to the running of Air Serbia. Most importantly, the transaction includes significant financial support to Air Serbia by the Serbian government entitled “aid for the restructuring of Jat Airways”.

According to an analysis of the Commission’s findings by “Lexology”, which specialises in global company law cases, plans drafted between the Serbian government and Etihad Airways will see the financial burden of restructuring Air Serbia, or Jat as it is referred to in the agreement, shared by the Serbian government and Etihad. In addition, Air Serbia will partly contribute to the restructuring costs with its own resources. On its part, the Serbian government assumed all liabilities which relate to Air Serbia’s operations until the end of 2013. These included loans taken out by the company, accrued liabilities to suppliers, deferred tax liabilities, unpaid salaries and redundancy expenses. The government also issued a guarantee for a short term shareholder loan which Etihad provided to Air Serbia for the financing of the carrier’s ongoing operations. Furthermore, together with Etihad, the government co-financed several shareholder loans for the improvement of specific segments of Air Serbia’s operations (such as line and light maintenance, catering and ground services). Finally, in order to cover the shortage of cash needed for the financing of Air Serbia’s operations, the Serbian government provided funds to the carrier either through direct subsidies or by decreasing Air Serbia’s cash operating costs. Apart from receiving assistance from the government and Etihad, the plan asserts that Air Serbia will partly contribute to financing the restructuring through its own resources. Specifically, the carrier will generate funds by leasing out some of its aircraft and selling a part of its assets (such as old aircraft and property).

On the other hand, Etihad will provide assistance to Air Serbia in the form of shareholder loans for financing the carrier’s ongoing operations and the improvement of certain segments of its business. In addition, it will provide various services to Air Serbia related to marketing, yield management, establishment of a call center, rebranding of its webpage and human resources (most of which it has already done). According to the Commission, it is also claimed that Etihad will further enable savings in Air Serbia’s procurements by using Etihad’s bargaining power towards suppliers (such as for the lease and purchase of aircraft). Finally, the plan promises that Etihad’s relationship with Airbus will enable Air Serbia to use the advance payment which Jat made to the aircraft manufacturer in 1998 for the purchase of eight new A319s. The latter has also been resolved as the controversial Airbus order was annulled and Etihad transferred part of its Airbus A320neo order to Air Serbia.


The published version of the Commission’s decision does not reveal the total amount of aid the Serbian government and Etihad will provide to Air Serbia based on the restructuring plan. However, the decision does disclose that the government will contribute to the total costs of restructuring by 46%, while the remaining 54% of the costs will be covered by Etihad, as well as through Air Serbia’s own resources. The plan claims the restructuring aid is justified since shutting down Serbia’s national carrier, an alternative to striking a deal with Etihad, would have had significant negative effects on the Serbian economy as a whole. It is also stated that Air Serbia’s total contribution to the country’s GDP exceeds 700 million US dollars and that its business is tied to approximately 21.000 jobs in Serbia. Furthermore, it is said that the loss of the national carrier would have had adverse effects on exports and tourism, as well as business sustainability of the country’s airports.

The decision made by the Serbian Commission for Control of State Aid has been made public by the regulator and can be found here (PDF document, in Serbian).

59 comments:

  1. Very interesting especially about airport fees. In its report BEG airport complains how Air Serbia is not paying but the government actually approved it. Good read. Thank you.

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    1. Sa Bozjom pomocu kada vreme dodje a aerrodrom Nikola Tesla Beograd (a i ostalih dva ako je moguce), bude prodat na lizing na dve tri decenije, tada ce se zavrsiti dirigovanje kompanija. Ta "genijalnost" jos prodeze od Jajca '43.
      Tek kada se zavrsi ideologija Jajca, zavrsice se zavlcenje ruku politike u dzep
      bilo koje kompanije. Prirodno i aerodrome.
      Tada ostaje placanje poreza i cist racun duga ljubav. Kao uvek gde poslovanje pociva na zaradi, a bez sakrivanja pod tepih zivot je izvestan, a ne volonterski, nego ozbiljan, uporan, prosperitetan...
      Rod. Sydney /// Kraljevo.

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  2. Air Serbia is in a total state of mess. Most flights are running late 30,40,120 minutes. Passengers loosing there connections. Especially the greek and lebanese market totaly "pi..... off". Delivery of aircraft late and fully painted A320 locked at MUC airport for now more then 3 months due to "papirologija". Who is paying for that? You know how much a parking fee is for one day alone?! The promised "new" website is just a slightly revamped old one without any standard modern function like web-check-in! When I tried to make a booking it blocked me on the last step and I got a strange message from Banca Intesa Serbia that there is a mistake!
    Well I think that the mentioned give away of airport taxes makes it just too much! So, now the Serbian tax payer is is subsidising each passenger, since the Airport is a public holding! I think that, if there was no strong "connection" between Mr. Vucic and the Sheikh, Hogan would never have let this madhouse happen! Mr. Kondic is just a white tiger for the public. Poor chap.

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    1. 'Air Serbia is in a total state of mess. Most flights are running late 30,40,120 minutes.'

      Sorry, but I must disagree with you. This just isn't true. The most flights are just on time, or late between within 10 minutes. And I, as a traveler, am ok with that, since i still can catch my next flight. But, here it is what im talking about: http://www.beg.aero/%D0%BF%D1%83%D1%82%D0%BD%D0%B8%D1%86%D0%B8/%D0%BB%D0%B5%D1%82%D0%BE%D0%B2%D0%B8/%D0%B4%D0%BE%D0%BB%D0%B0%D1%81%D1%86%D0%B8.335.html?brojLeta=&destinacija=&datum=2014%2F06%2F16&vreme=&timeZone=2&type=IA&flightSearch=true

      And i couldnt agree more with you about flights from Greece n Beirut. Its a mess! If ASL dont do something they will definitely loose those important markets.

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    2. Putnici ne gube konekcije za dalje letove ukoliko je kašnjenje oko 30 min, avion ih svakako sačeka.
      Problem je ako se kasni po više sati.
      Pored svega Atina i Solun su nam dobre linije
      Atina LF 78%, a Solun LF 82%, takođe noćni letovi za Atinu su oko 65% (A319). Noćni za Solun oko 69% (ATR72)

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    3. For those who started following Air Serbia news recently: Belgrade Airport and JAT had disagreements over property and payments for a long time. This is something Air Serbia inherited from JAT, and permanent resolution seems to be tied to long term airport ownership/concession solution that is in the works.

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  3. Turkish, Luftansa, Aeroflot and others should take legal act against Air Serbia and Airport Belgrade for illegal and not similar conditio for business. Privilegion is so big that they don't have chance.

    And let us remember how they madacre Wizz for gets small subvention which is nothing comparing to this. Disaster.

    Now that looks like Serbia takes loan from Etihad to make company and to give 49% to Etihad for free. What if they decide to go out. Serbia will pay hufe amount of money fot loan.

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    1. You do realize that state owned companies can be given subsidies. Croatia Airlines received millions from the state. The last teansaction was early last year. Even today their entire domestic network lives on government hand outs

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    2. Croatia wasn't in the EU early last year, now it's much harder, no state subsidies any more!

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    3. That is NOT TRUE!!!! Croatia airlines gets PSO and that is money for each rote where you defined price, capasity and frequencies to have routes which are important for country. And that can not be out of country but only on donestic flights. And tender is open for any company. That is why Trade air wins Osijek and Rijeka flights. It is like Serbia open PSO for BEG-INI route. But in same time Montenefro can run for PSO and if thay make better offer they will fly on that route

      But for sure Croatia never gets free airport taxes. That is illegal, unfair ant totaly against same business chance. To get discount by number of flights and.passengers is ok. Mor pax bigger discount. But in same time 500.000 wizzar pax no discount and 1.300.000 Air Serbia pax 100% dicsount????

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  4. That is pure fraud. If one take 19.5 EUR for airport taxes from passenger thay have to pay that to airport not to take this money. Thay did not collect money for Air Serbia but tax for airpirt. That is pure criminality.

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    1. The only "criminality' here, is your poor English - stick to your native language, at least in that way, you won't put people through misery trying to read and understand what you have written ... What you fail to recognize, is that the Govt of Serbia is the majority owner of both assets and as the owner, if they agree to any non-payment, then that is their prerogative to do so - not mine, yours or anybody else's ...

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  5. It is the sad thing i lost any confident in future of AirSerbia...lack of planes, delays, non transparency, good old B733 are saving company from disaster...where are new planes.....If Serbian government gave Nikola Tesla airport to any Western company for 30 year concession what would happen with such deal with taxes....so it would be an Arab company for sure and the same, hidden from the public , contracts.

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  6. The page "Aerodrom Beograd Nikola Tesla- ljubitelji aerodroma " no longer exists. As announced earlier.

    Second, is Iron Maiden boeing 757 gonna land today at BEG?

    http://4.bp.blogspot.com/-JjpDBMsukRw/TnN4TUfVwQI/AAAAAAAABzE/1t12QGfXh50/s400/IMG_6235a1.jpg


    ACES HIGH!

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    1. I don't think they're using a special airplane since Astareus went bust in 2011 :( I really love the paint scheme on that plane (so much that i have 1:200 model on my desk).
      Cheers!

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    2. What happened to the page Aerodrom Beograd Nikola Tesla- ljubitelji aerodroma ???

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    3. B92.net says :

      "Iron Maiden su sinoć malo posle 23 časa, nakon
      rasprodatog koncerta u Sofiji, sleteli u Beograd sa svojim avionom Boing 757..."

      confused. :/

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    4. The page "Aerodrom Beograd Nikola Tesla- ljubitelji aerodroma" reappeared on Facebook revealing photos of Russian state service Il-96

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  7. Air Serbia owes also five million eur to Jat Tehnika, which is in major trouble. Jat Tehnikas financial affairs are so hit that procurements of new parts is blocked, their bank accounts are always empty and thats the reason for most troubles with the AT72s in JU fleet.

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    1. Does this mean Jat Tehnika could stop operations and go bankrupt soon?

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    2. Yes, there's no point in them continuing their operations. Their largest client by far was JU which now has in-house maintenance operations. Jat Tehnika was another one of Dinkic's imbecile projects.

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    3. Its me again, who started the thread. Jat Tehnika is a great business, they have enough clients to sustain and all conditions to make em a good profitable company. The only kink is the JU debt. Their clients include the following airlines: 5O, UN, LS, and some other cargo and passenger airlines, and theyre now negotiating with some Turkish and Lebanese carriers.

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    4. A "great business" you say ? it's such a great business that "bad" businesses like SR Technics and Mubadala walked away from even considering purchasing it because of it's poor mgt practices, antiquated facilities, lack of tooling and being overstaffed to the tune of 800 people !

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  8. OT Banjaluka in May 2209 passengers, rough calculation shows approximately 55% LF. Not great but much better than 30% they had during winter months. During the summer months this should be even higher.

    Source. BUT FB Page

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    1. But you haven't calculated that some of those passangers are the passangers on BH flights to Zurich...

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    2. Good point. The actual number is probably closer to average 50% if you take both into consideration. (ZRH flight is twice weekly if I'm not mistaken)

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    3. BNX-ZRH is 4x weekly and on that flight there is always 20 to 30 pax, so LF to BEG is only about 30%

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    4. BNX-ZRH is 4x weekly and there is always 20 to 30 paz on that flight, so LF to BEG is about 30%

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  9. Air Serbia is returning to Ataturk Airport and was granted slots that have requested. TK scales down from 17 to 14 flights a week.
    A guaranteed "full house" loads for Air Serbia.
    If anyone knows how to talk to Turks - Serbs know.

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    1. +1

      http://tangosix.rs/2014/17/06/postignut-dogovor-air-serbia-se-vraca-na-ataturk/

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    2. xaxa just wait for trols ;)
      they will explain how this is not good for AS

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    3. I think some people here are so used to bending over backwards every time Germans and alike ask for something that they fail to see when one actually does have some leverage. THY is big we all know and Serbian market is small for them but still, if they had a better place to deploy their ACs they would've for sure.

      Some people here were mentioning THY flights avoiding Serbian airspace. What do you think is a chance of that happening? Would that cost them more in fuel?

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    4. lets face it compared to TK , AirSerbia is sh*t.

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    5. i dont think the SERBS talked with them. it was the ARABS

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    6. Other than T6, I can't find any other source for this news. Is this for real?

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    7. First they were talking that Serbs all behave like "nebeski narod", that they are delusional and they are going to get screwed by TK and Turkey. They did not mention Arabs at all. Now, we can see that still there is some bickering about JU ( Air Serbia is sh*t, those weren't Serbs who did it but Arabs, etc).

      Guys, relax. Drink a beer.

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    8. http://www.novosti.rs/vesti/turizam.90.html:496588-Er-Srbija-opet-na-Ataturku

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    9. Jos samo da sacekamo odluku FAA o CAT1 za Srbiju pa da najzad pocnemo da verujemo u tako lako data obecanja.

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    10. Good news, and most importantly, how solution can be found with mutual interest for both sides and pave way for future solutions.

      This outcome is also major fail for M. Brkic and the hate brigade.

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    11. Pitajte LH koga se vise plasi nebeske JU ili OU, posto vredjate JU.
      INN

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    12. Pitajte LH koga se vise plasi nebeske JU ili OU.
      INN

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    13. This is a total victory for JU. Like, flat out total victory.

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    14. lol victory. read again the disclosed Serbia-Etihad investment and how the Arabs ripped u off

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    15. i recommend the blog owner to disable anonymous comments and allow ony those posted via google accounts and them let be aget 18 and over. I am now posting as an anonymous to avoid future flame wars related to my real identity.

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    16. I would expect Spiderman to write post like that. Is that really you, Peter Parker?

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    17. Ah yes, the "Heavenly" M Brkic - wonder what rat hole he has crawled back into ? If he was a "journalist" with any sort of credibility - sorry, human with any sort of credibility, he should've been the first to stump up and say - "guys, I got it wrong. The Serbs were right to stand up for their rights under the existing bilateral agreement between Turkey and Serbia". However, his silence and that of others in the looney minority, is what we come to expect of such people .... Poor deluded soul ... He should pack up and go back to the land of his paymasters

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  10. Really surprised people didn't comment more about today;s news. Probably one of the best articles I have read on this blog and thanks for giving the link. I like Air Serbia but not shady backroom deals. Yes, I realise it is sometimes necessary to do business that way as well and it is all to common in the Balkans including Zagreb's deal with the French, Macedonia's deal with the Turks and we never even saw the deal between BH and the Turks.

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    1. Excuse me, what shady backroom deal you talk about Zagreb airport? There was international tender for Zagreb deal, EBRD (European Bank for Reconstruction and Development) is the main investor/creditor, complete Contract is published, and still is on the pages of Transport Ministery, only couple of weeks after signing, there are no hidden articles, money amounts are listed, no with 3 dots wherever amount is supposed to be, etc etc

      I don't want to comment on Skopje and BH, because I don't know about it, but please leave ZAG alone, and stop placing it among Balkan countries when talking about corruption - at least EU membership should be a guarantee for less corruption and more transparency, if nothing else

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    2. The tender for the selection of Aeroports de Paris was one of the most nontransparent and corrupt tenders ever conducted in Croatia. Even TAV threatened to sue the Croatian government. When it comes to corruption, Croatia is right there front and centre with other Balkan countries.

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    3. "at least EU membership should be a guarantee for less corruption and more transparency, if nothing else"

      I love it when people equate western world, EU, USA or other "developed democracies" with no corruption. Dude, they invented and legalized under form of lobbying for example. I've seen so many of them from both Belgrade and Zagreb that live their lives with this idealistic idea which is so far away from reality it's not even funny.

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  11. "...and stop placing it among Balkan countries when talking about corruption - at least EU membership should be a guarantee for less corruption and more transparency, if nothing else"
    hahahaha Are you serious?

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  12. You guys can hahahaha as much as you want and make fun of Zag, and invent and criticize, but nothing will change the fact that Serbian tax payers will be those to pay Air Serbia "great success story".

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    1. What's hahahaha is that JU has a moneybags 49% owner of its business who also happens to be the most successful airline in aviation these past 10 yrs ... OU manages to even turn away a flea bag airline like Garuda .... that's the real hahahaha here ...

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    2. Further, with EY investing in JU, it has already saved the Serbian taxpayer USD500m due to Airbus withdrawing its lawsuit against the Govt for not going ahead with its airbus aircraft order from 1998

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    3. Сваки пут кад су добре вести о Ер Србији или АНТ, хејтери хејтују. Видиш да трол не зна да већину авио компанија у региону држе или помажу државе тј порезници. Због тога мајсторе Лука предлажем брисање хејтова у име менталне хигијене.

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    4. Anonymous10:57 PM
      Upravu ste 100%.
      Odma se bune kad nesto dobro krene JU ili ANT.(Ne svi)
      INN

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    5. Anon at 9.51pm ... and who has been paying for all the previous losses of OU ? Oh that's right, how silly of me - it's the Serbian taxpayers - ofcourse ! Your name must be Cyclops - because you clearly only see things with one eye ....

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  13. SU i AZ sutra A321 ANT :)
    INN

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