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| Etihad defends European investments as Air Serbia debate deepens |
James Hogan, President and CEO of Etihad Airways, as well as Vice-Chairman of Air Serbia, has defended his company’s decision to invest in airlines across the world, saying the likes of Air Serbia and Alitalia would be bankrupt if Etihad hadn’t stepped in. Speaking at a European Union conference on air transport competitiveness in Vienna, Mr. Hogan called out Lufthansa and its offensive against his company’s investments. He cited examples of direct European state aid totaling 14.2 billion euros, including an 800 million euro payment by the German government to Lufthansa to support a pension fund gap, state aid of 1.1 billion euros for Swiss International Air Lines following the collapse of its predecessor, Swissair, and the Austrian government’s absorption of 500 million euros of debt accrued by Austrian Airlines. Both airlines are now subsidiaries of Lufthansa.
The statements come as Etihad’s takeover of Jat Airways, and the launch of Air Serbia almost a year ago, has ben thrown back into the spotlight following the arrest of Belgrade Airport’s CEO last week, accused of providing benefits to low cost airline Wizz Air, contrary to state laws. Politicians, unions and members of the industry itself have accused the Serbian government of protectionism while the country’s former Prime Minister, Zoran Živković, said the state will subsidies Air Serbia until the end of 2016.
However, Mr. Hogan said the European airline industry was built on decades of government ownership and support, and that even after privatisation or part privatisation, government bailouts, debt waivers and other subsidies continued. “Consolidation of airlines is critical to sustainable air services. External investment is not a threat”, he added. Without Etihad Airways’ stakes, Mr. Hogan said there would be a loss of financial investment and synergy benefits for Air Serbia, Air Berlin, Aer Lingus and Darwin Airline, as well as a loss of a “rescue investor” for Alitalia, costing thousands of jobs and leading to air route closures, flight reductions, higher fares and lost tax revenue for European governments. “There are strong economic and social benefits from stable and connected airlines”, Mr. Hogan said. “Etihad Airways wants to engage with Europe”.
German flag carrier Lufthansa, which has been engaged in a long running war of words with Gulf airlines over alleged subsidies and state backing, walked away from a planned codeshare agreement with Etihad in 2011. Several months ago Lufthansa appealed for the European Commission to investigate whether Etihad exercises effective control of its European subsidies Air Serbia, Air Berlin and Darwin Airline, contrary to EU regulations. In addition to its Swiss and Austrian subsidiaries, the Lufthansa Group also owns Germanwings and holds major stakes in Brussels Airlines and SunExpress and a minority share in the US carrier JetBlue. There has also been further opposition to the Etihad-Air Serbia deal. Earlier this year Delta Air Lines and ALPA (Air Line Pilots Association) successfully lobbied for the US Department of Transport to deny Air Serbia codeshare rights on Etihad flights to the United States. Furthermore, Delta has appealed against allowing the Serbian carrier to codeshare on Air Berlin flights to the US, although a decision on this issue is still pending. However, Delta itself is under investigation by the European Commission for its 49% stake in Virgin Atlantic.
Lufthansa and other well established flag carriers are the only ones who benefit from these EU laws. Lufthansa had it's time of state ownership until 1994, so they benefited from four decades of protectionism and investment. Now that Lufty is all built up, the EU must ensure that any other country cannot develop it's own carrier to challenge the domination of Lufthansa group. EU now won't allow state aid and foreign control, which only hurts the prospects of small and developing carriers such as those in South and East Europe.
ReplyDeleteChris Frantz was just another cost cutting accountant Lufthansa CEO, and those are dime a dozen in this industry. Spohr seems to be of the same kind, and that's not what Lufthansa needs. So far he is flacid in the Innovation Department, where Lufty needs most help, and mostly continuing Frantz's hardline approach to ME3/Turkish, where he is most likely to fail. Yet another short lived CEO?
DeleteNepobitna je cinjenica da sposobnost, inventivnost, prakticnost sa primenom sa glavnim akcentom na profit i finansije su prakticno uvek bili zvezda vodilja zajedno sa pojedinacnom i korporativnom odgovornoscu, gotovo kroz citavo vreme od kada nosi ime LUFTHANSA. Ekonomska vremena za Evrpu prvenstveno u ovom periodu taff, hard!. Posmatrajuci izlaganja sa Becke konferencije o komercijalnoj avijaciji, dolazi se do uopstenog zakljucka, da "kralj je go". Ocigledno je da se velikoj Lufthansi u ovom slucaju poprilicno gadi na izlaganje Etihadovog Bosa, Mr. Hogana. Jeste da je Lufthansa sa jos nekoliko drugih vlikih, mezimce EU. Po zamisli pojedinih male avio kompanije treba da obsluzuju velike. Nekoliko malih dabranih rukom Lufthanse to i radi. Velika Lufthansa nije imala potrebe da kupuje "bataljene" liliputane od avio kompanija jugoistocne Evrope. Jer ako koja i prezivi tesko da ce stici dalje od La Mansa. Etihad stze i bura poce. Sto je nije predvidela jedna strategija, za sada uspesno Hogan "riva" kola uzbrdo. Ako bude sve transparentno, fer u stalno naglasavanom SLOBODNOM TRZISTU, onda i sekundarni prevozioci imace sansu. Sa ALITALIOM koja vec leti, da AIR SERBIA zapocnu Long houl. Nekom se ne svidja, pa nastoji da zaustavi proces. Interesi jesu razliciti, ali trgovina i politika su krem dila, gde drugacije ne ide. Jer sve se menja sem kamenja, a i ono se pretvara u prasinu. Vreme pravi, vreme razgradjuje. Toliko mogu da vidim preko Alpa odavde iz suncanog zimskog Sydney-a.. Vas Rodney, Sydney // Kraljevo.
Delete"country’s former Prime Minister, Zoran Živković, said" - who asks him anything? how come he is still politicaly alive?
ReplyDeleteAnd in Serbia democracy is to speak when someone give you permission or when someone ask you something? In meantime you have to shut up even if you have some data where you can prove that something is very fishy.
DeleteThe data he found is from the report by the Control of State Aid. It was published here a few weeks ago. But Zivkovic is actually a member of parliament and as much as it pains me to say he is the only person putting some kind of opposition to the government. I say pains me to say because he is a corrupt crook as well unfortunately.
Delete@ Anon 10:19
Deletei said that because he is an idiot, who began destruction of this country when Đinđić was killed, as well as a corrupted crook, as last anon said. he has absolutely no right to speak about anything that is going on now in this country, because current sh*t is also his fault
I find it amazing that people like this discredited former PM Zivkovic - the operative word being FORMER PM - has anything to say at all about Air Serbia. Infact, if he had any shame at all (I know that's a big stretch), he would completely lay low and avoid making any comments around Air Serbia. Why ?? It was him and his cohorts who were responsible for the state that JAT Airways had got to prior to Etihad's investment. If the airline had been better managed, rather than pilfered, plundered and had truckloads of useless DS people forced on the company, then maybe the new govt would not have needed to bring in Etihad.
DeleteBeing in opposition is a rather simple and stress free existence. You can promise the world and not be held accountable to deliver anything. However, these discredited people were in power for over a decade and had ample opportunity to do some good with JAT and what they did was evident for everyone to see.
Even allowing for this mismanagement and giving them the benefit of the doubt that this new govt has made the wrong decision with JAT / Air Serbia, what would be far more useful and expected of a credible opposition, is for him and his opposition, to put forward an alternate plan for JAT / Air Serbia, instead of simply criticizing everything that the govt does. The fact that he hasn't, pretty much tells us how intellectually and morally bankrupt this guy is.
He was discredited in govt and is discredited in opposition.
He should go and grow some corn or wheat - something of far greater benefit than the useless contribution he is making to public life at the moment
OK, but if someone was a crook and was guilty about Jat situation still
Delete1. It is OK for the country that someone is opposition
2. It is more than OK that someone fined this and published it to show what is real background of this „perfect“ deal
3. For us is not important to discuss who find those data, but what those data are! I don't care if those data was published be Devil himself, this document put total new light on Air Serbia - Etihad deal and is harmful for tax payers in Republic of Serbia. Yes, it would be better and more democratic if some inspection, police or prosecutors find those contract and open investigation, but in country where Vučić is little God, Masaya, Supermen who decide what can go on television or even what happens or not, and that have power to even remove things from internet, we cannot rely on those mechanisms which are normal in other countries, but we can just hope to have someone who, as opposition, will put some fishy deals in daylight.
Ok anon at 1.26pm ... you sound like Zivkovic ... are you sure you are not him ??
DeleteSo you are right - this deal is THE worst possible deal for every man and his dog in Serbia. Catastrophic, criminal, repugnant - every imaginable word under the sun.
So I don't want to hear any more about how bad it is, instead, tell me what you would have done instead and tell me how you would fix it ...
I want to see the capacity of your brain work through this question ...
To me this is not a new information. If you remember a few months ago some organization published what appeared to be a draft contract between the Government and Etihad. I don't have the link now but it gave exact schedule of how Air Serbia's is to be funded. Etihad provided $100M short term loan (that is to be converted into capital later) while the government provided similar amount but in instalments of (I believe) $40 each. The purpose of all of this was to strengthen their balance sheet (i.e. cash reserves) so that the airline can make necessary investments in marketing, assets, people etc.
DeleteNow you sound like some says “well it is not OK that we kill our neighbor, but give me other solution to make it better. If you can’t we will kill other neighbors in future also”. If something is not right, if it is crime or against public interest, you cannot justify it with “there is no better solution”. Don’t do crime even if there are no other solutions. Crime cannot be justified with “higher goals”. Let me just remind you the worst example in history - Hitler. He really though that he is doing good thing for Germany and that he can justify crime with “higher goals”. Of course I don’t want to say that this deal is similar with Hitler, but I thing you get a point.
DeleteSM, it is not the same. 100 million from Etihad and loan to Serbia to make another 100 million investment in Air Serbia is not in question. OK, we can descuss if that is a good deal or not.
DeleteHere we are talking about Serbia’s subventions till 2016 what is something else and up to this obligation of 100 million invesment from GoV of Serbia. So:
- Serbia takes all debts from ex Jat + obligations to workers that were asked to leave (that is at least 350 million EUR including debts for 2013)
- Serbia takes huge and unreal debt for 2013 (even for last 2 months which was conduct by Etihad)
- Serbia invests 100 million EUR for which they get loan from Etihad (in same time that money goes back to Etihad for education, leasing etc.)
- Belgrade airport gave huge privileges to Air Serbia (and Belgrade airport is public company, so again that is Serbian cost)
- Serbia will give extra money for subventions till 2016 (God knows how much, but for sure it is not less than 50 million for 3 years)
So we came to 450-500 million EUR. From where will Serbia pay that huge amount of money?
Here is the document for you to read if you have some time(http://www.balkaninsight.com/en/file/show/ETIHAD%20Transaction%20Framework%20Agreement.pdf). It is draft, unofficial and for all we know could be fake but if we believe it to be legit I don’t think you are correct on at least some of your points:
Delete1. Serbia takes all previous debt – This is understood, even Hogan said this numerous times that they the only way they would do this is with a clean slate – can’t blame them. Most of it was to other state owned companies (not a consolation but makes it easier for the government to fund because they don’t have to pay cash out of the state treasury)
2. Serbia takes huge and unreal debt for 2013 – you are probably right but they owned the damn thing in most of 2013 so I wouldn’t expect it to be any different
3. Serbia invests 100 million EUR for which they get loan from Etihad – This is not correct I think. If you read the contract, section 1.9 $100M is Etihad’s investment (40+60). GoS in section 2.5.4 provides 3 x $14M a year in cash and (Section 2.5.5 )$18M and $22M in 2015 and 2016 in the form of grants or expense reductions.
4. Belgrade airport gave huge privileges to Air Serbia – Section 2.5.5. says that this funding can be in a form of “reducing operating cash expenses borne by JAT” so the loss AB makes is actually GoS investment obligation not above and beyond funding.
5. Serbia will give extra money for subventions till 2016 – Again if we trust this contract, what they’ll invest is past liabilities + $82M. I don’t know if $450-500M is the right number but you are probably within the range. Is it a lot – it is for sure. Saving grace here that most of that money GoS will not have to pay in cash. Debts to treasury and state owned companies are just written off. It’s still revenue lost but at least it’s not cash.
Again, this is my understanding of this agreement. If you believe it’s legit have a look yourself you might find some interesting details.
Anonymous July 7, 2014 at 1:53 PM
DeleteI like your analogy and subscribe to it but I don’t think you understood me correctly. Politicians like to be bombastic for marketing purposes. What he is insinuating is that these subsidies or investments or whatever you call it is some hidden cost that nobody knew about. I believe this is part of the original agreement (of course if we believe that draft contract published by BIRN is actually legit-I have no ways to verify this) in section 2 of the contract.
Thanks SM for your explanation. And link for contract. I promissed I will read it during holidays.
Delete@anon 3:02
DeleteNo problem. It's a lot of legal mumbo jumbo so it might be difficult to read if you are not used to that language. I guess you can start at the very back with the Schedule A. If that's true GoS cost total is $102M (if my accounting serves me correct) while Etihad is investing $100M
Some comments point to cost of JAT/Air Serbia deal to taxpayers. I find it interesting that cost benefit analysis/economic impact analysis of that deal was not of greater interest to commenters as it would add more color to what I assume was part of deal’s due diligence process and provide more balanced insight.
DeleteWithout it, one sided focus on cost alone might be considered as loaded.
Exactly right!!!.
DeletePeople should start looking at the big picture little more. Cost of this deal is irrelevant if it has a potential to bring healthy return on that investment.
This comment has been removed by the author.
ReplyDeleteja mislim da je ovo bila nakbolja opcija sto je mogla da se desi jatu! Da je prijavljrn stecaj, radnici izgubili posao nebi ipak bilo najbolje resenje. a tek slotove koje jat ima. sve bi to uz puno napora moralo.opet godinama da se pokrene. ipak pogledajte, posle manje od godinu dana moderniji avionu su u upotrebi, novih zaposleni radnika. najvise mi se svidja velika promena kada putujes sa njima. tako da sve u svemu hvala ipak etihadu sto nam ipak otvqra do sada zatvorena vrata!
ReplyDeleteTo govoris kao putnik ili kao neko kome je vazduhoplovstvo profesija?
DeleteAko si putnik to je OK (enterijer je nov, ali samo to)
Ako si profesionalac u vazduhoplovstvu, onda, bez uvrede, nesto kod tebe ne valja!
500 milijona EUR šta je uložila Vlada Srbije. Čoveče. Pa šta nam je trebao Etihad. Para je to. Ogromna para. To vredi 50% Alitalije. Tko će to da vrača? Odakle te pare? I jel to bilo najpotrebnije u ovoj našoj bednoj zemlji?
DeleteYou are obviously neither, because if you don't see Air Serbia providing a quantum leap over JAT Airways ... then I suggest you get back into whatever cave you came out of ... And by the way, just in case you haven't realized it yet, the world is not flat - it is actually round ...
DeletePa dobro jel vas to uče u osnovnoj školi ili morate diplomirati bezbrazluk i nekulutu u ophođenju da bi dobili državljanstvo? Pa zar se ne može razgovarati civilizirano bez uvreda i vrijeđanja? Ali svaki puta ista priča. Netko nešto kaže, dugi to izvrijeđa kao da mu je majku ubio ili zatro sjeme. Nevjerovatno.
Deleteau, sve sami "profesionalci ovde", svako ima pravo da kaze sta misli, sta su se ova tri komentara ispod nasli uvredjeni? mozda bivsi ministri, ili radnici jata?
DeleteAl sto se ovi hrvati toliko trude da pisu srpski, ne ide im... pa cak i da su Srbi iz Hrvatske koji zive ovde pravili bi razliku izmedju č i ć.
DeleteMeni malo smesno... da ne kazem smijesno.
pa po cemu nije bolje? Za razliku od jata pre godinu dana (avioni, radnici, financije) je 100% bolje. kao drugo pogledajte oko sebe malo kako se aviosaobracaj razvija pa mi se onsa javite, ja mogu pricati jer koristim njihove usluge, a ne sedim na internetu i komentarisem nesto sto nemam nikakvo iskustva!
ReplyDeleteJos kad ASL pocne letove za KORD i PEK za 1god :-)
ReplyDeleteJa predlazem da leti Beograd-Nis-Insbruk-Cikago i nazad
DeleteMamlaze zašto se ne potpisujes??
DeleteOT: 4 biding offers for Ljubljana Airport
ReplyDelete*Friedmann Pacific from Hong Kong owner of China Aircraft Leasing Company
*VINCI Airport Group from France (All airports in Portugal and Cabodia and many in France all together 23 airports with 43 mios PAX)
SAWE from Italy (Venice, Verona, Treviso Airports)
and Fraport (Frankfurt Airport)