State paves way for Air Serbia recapitalisation


The Serbian government has adopted a decree which enables it to recapitalise Air Serbia with over 250 million euros in funds. The policy foresees assistance for both state-owned a private enterprises which were profitable at the end of last year and can prove they would go bankrupt or be in significant hardship without the recapitalisation. Back in April, the country said it would provide financial support to its national carrier either through recapitalisation or corporate bonds, in order to mitigate the effects of the coronavirus pandemic. Recapitalisation entails changes to the airline’s capital. This may occur, for instance, when a creditor exchanges a loan for a stake but does not require changes to the company’s management structure. 

The decree adopted by the government comes with several conditions attached. Through recapitalisation, the state can increase its share in the company, which it can later sell back to the said company at any time or another entity. It also foresees for the aid to be paid back over a certain period of time with interest. However, if the company in question is state owned, after two years, an independent appraiser may determine that the value of the recapitalisation was positive, suggesting the beneficiary would be freed from repaying the financial assistance, although the decree is not clear on this point. Other conditions include a ban on bonuses for the top management and employees until 75% of the assistance is repaid. 

In June, the Serbian President, Aleksandar Vučić, said, “We are holding talks with the shareholders [of Air Serbia] from the United Arab Emirates and soon we will know what action needs to be taken. We will request for them to provide part of the finances for the losses that have been incurred over the past four months. These are massive losses. We are ready to provide part of the funds too. If they [Etihad] don’t want to, we are ready to recapitalise the company and take a greater stake in the airline as a result. We won’t give up on building up the company”. The President hinted that if Etihad were to fully or partially exit the airline, another strategic partner could be brought in. “We might introduce some other strategic partners, but we will continue to hold a majority stake. Air Serbia will be our flag carrier and it will be stronger than it is today”, Mr Vučić noted. 

The strategic partnership agreement between Etihad Airways and the Serbian government, unveiled in August 2013, saw the Emirati airline make available a forty million US dollar loan facility to Air Serbia which was converted into equity on January 1, 2014 for a period of five years. This was matched by an equal funding injection by the Serbian government. The two sides each provided further funding through shareholder loans and other funding mechanisms to meet working capital requirements and support network development. The five-year deal was later extended until further notice, however, Etihad’s involvement in Air Serbia has been significantly reduced, with the state providing subsidies and funds for the airline over the past few years. Etihad registered an 870 million US dollar loss in 2019 and its equity investments in carriers around the world have unravelled in recent years. 

On Monday, Air Serbia marked the seventh anniversary since launching operations under its new name and brand. The carrier’s CEO, Duncan Naysmith, said, “For seven years now, Air Serbia has represented the main pillar of the development of tourism in the country and has been contributing to the dynamic growth of air transport, connection with the region and strengthening the national brand. Our birthday comes in specific circumstances, having in mind that we are in the biggest global aviation crisis in recent history. We are aware that challenging times are ahead of us. However, I am convinced that, by quickly adapting to changes, managing our resources rationally, constantly introducing innovations, and primarily, through dedicated work and commitment of our employees, we will manage to turn the present challenges into fuel which will drive our engines, full steam ahead”.

Comments

  1. Anonymous09:02

    They should sell the Etihad part to Qatar Airways.

    ReplyDelete
    Replies
    1. Anonymous09:08

      The other party would have to be interested as well. QR said that they weren't interested in purchasing former Etihad investment when Jet Airways went bust.

      Delete
    2. Anonymous09:17

      If only it was that easy @anon 9.02

      Delete
    3. Anonymous09:26

      Not even mentioning the current state of aviation, but bare in mind that Qatar and UAE aren’t exactly friends these days and have next to no diplomatic relations, so such transaction would be very difficult.

      Delete
    4. Anonymous09:40

      Qatar is in a mess as well. They amounted nearly 1 billion in loses

      Delete
    5. Anonymous11:01

      JU has currently better cooperation with QR than with Etihad.

      Delete
    6. Anonymous11:40

      Vucic has criticized Qatar (the country) on several occasions (under the influence of UAE sheikh) so I'm not sure that's plausible. Even though Serbia and Qatar have very good relations. Qatar lifted entry visas before UAE did for Serbian passport holders. Energoprojekt has several major projects ongoing in Qatar at the moment, both have embassies in each other's countries... Ironically QR started flying to Belgrade before Etihad.

      Delete
    7. Anonymous16:27

      They also transfer passengers onto Air Serbia's flights.

      Delete
  2. Anonymous09:07

    Very interesting. Let's see how much money they get, and if Etihad will be kept as a partner.

    ReplyDelete
  3. Anonymous09:07

    The good news is the state is willing to help.

    ReplyDelete
    Replies
    1. Anonymous09:09

      Was that ever in doubt?

      Delete
    2. Anonymous09:37

      They've said they would help Air Serbia from the day corona struck.

      Delete
  4. Anonymous09:09

    250 million sounds plausible actually.

    ReplyDelete
    Replies
    1. Anonymous09:37

      Yes, this seems to be the most realistic figure I have heard in regards to state aid to JU.

      Delete
    2. Anonymous11:40

      I fear the losses will be even greater as this crisis prolongs.

      Delete
  5. Anonymous09:10

    JU no longer needs EY.

    ReplyDelete
  6. Anonymous09:10

    What could these "other strategic partners" be in this sort of business climate?

    ReplyDelete
    Replies
    1. Anonymous09:41

      It would have to be an airline from some country/leader that is politically close to the president. My only guess would be Turkish Airlines or some Chinese airline.

      Delete
    2. Anonymous09:45

      I doubt anyone would be interested.

      Delete
    3. Anonymous09:54

      World is not going to recover so easliy. Rearly who will be intrested investing in unprofitabile airline.

      Delete
    4. Anonymous09:59

      No airline in the world is profitable.

      Delete
    5. Anonymous09:59

      Airlines may be interested in investing for strategic reasons, with the aim of turning the company profitable.

      Delete
    6. Anonymous10:03

      Anon 09:59
      Currently no. Usually you have bunch of them, and even during good times JU was unprofitabile.

      Delete
    7. Anonymous10:10

      You can't know whether they were profitable or not during "good times" because the market economy in the country was completely different.

      As for the bunch of profitable airlines, we have seen how profitable they are. At first sign of crisis they all went running for bailouts. If you run a good business, you create cash reserves, something very few airlines have done. Even mother Lufthansa, which is so revered and praised and is about to ask for another bailout.

      Delete
    8. Anonymous10:18

      If they cannot survive losses that doesnt mean they are unprofitabile. And about Lufthansa, please try to learn something about their deal befor you wrote a comment here.

      Delete
    9. Anonymous10:21

      I know about the deal. But I'm sorry, I know anything negative about Lufthansa, which was thinking of not flying this winter at all, is strictly off limits for some.

      Delete
    10. Anonymous16:02

      Lufthansa got 9 bln euro aid, but had in 2019 revenue of 36 bln euro (25%). JU expects 250 mln euro aid, while having 300 mln euro revenue in 2019 (83%). That goes to show Lufthansa wasn't such a bad company as you write.

      Delete
    11. Anonymous16:06

      We do not know what JU expects. The article correctly says that they just adopted a decree which applies for all companies (private/public). It's not just about JU.

      Delete
    12. Anonymous17:30

      The article says that the decree enables the government "to recapitalise JU with over 250 milion euro in funds". To me it does not say that this amount is for all companies that are supposed to get aid under the decree.

      Delete
    13. Anonymous17:32

      Read the article again. It says "The policy foresees assistance for both state-owned a private enterprises which were profitable at the end of last year and can prove they would go bankrupt or be in significant hardship without the recapitalisation" yes it can finance any company between 0 and infinity. Now there is just a legal basis for it.

      Delete
    14. Anonymous17:40

      Hardly doubt that up to infinity. I am pretty sure it gives caps. Thus the amount of "over 250 mln euro" in the context of JU and not all companies involved. But we shall see. Otherwise what would be the role of the 250 mln euro figure in the article?

      Delete
    15. Anonymous19:09

      They mention it because assistance is being offered up to 250 million but state owned companies that were profitable at the end of 2019 can receive even more, so Air Serbia theoretically can receive more.

      Delete
  7. Anonymous09:11

    Fingers crossed for the best outcome.

    ReplyDelete
  8. Anonymous09:12

    Good!

    ReplyDelete
  9. Anonymous09:13

    Let's see if Etihad will cash out. I doubt it.

    ReplyDelete
    Replies
    1. Anonymous09:18

      If they do, maybe they will again take a more active role in running the company.

      Delete
    2. Anonymous11:41

      I don't think Etihad is in a position to give anyone money.

      Delete
    3. Anonymous13:49

      Air Serbia is in far better shape than Etihad. If nothing other, far smaller company where you can handle losses and investments...

      Delete
  10. Anonymous09:18

    I wonder if Etihad will keep its stake in Air Serbia.

    ReplyDelete
    Replies
    1. Anonymous09:18

      Given the state Etihad is in, I doubt it.

      Delete
    2. Anonymous09:23

      Let's wait and see what happens in the end. Or if Vucic and Sheikh will reach some sort of a compromise.

      Delete
  11. Anonymous09:19

    Etihad might have little effective control in Air Serbia at the moment, but Air Serbia wouldn't have achieved most of the things it has done were it not for Etihad.

    ReplyDelete
    Replies
    1. Anonymous09:20

      True. EY created the conditions for Air Serbia to build up its network and fleet.

      Delete
    2. Anonymous09:41

      yes, EY helped a lot in the early days. now, they're more liability then necessity

      Delete
  12. Anonymous09:23

    What has Etihad invested in Air Serbia in the last two years anyway?

    ReplyDelete
    Replies
    1. Anonymous09:28

      I think after nearly a decade in the project, they would expect to seeing some returns, not a need for further investment.

      Delete
    2. Anonymous09:31

      They got them out of the Airbus order from 1998 and even got them their deposit back.

      Delete
  13. Anonymous09:32

    The only problem is that if EY leaves the government will put in place some politically appointed management.

    ReplyDelete
    Replies
    1. Anonymous09:36

      Don't think the president would allow such a prized possession to be handed over to someone that doesn't know what they're doing.

      Delete
    2. Anonymous09:40

      Exactly. Vucic won't allow for his pet project be ruined by some party-appointed idiot

      Delete
    3. Anonymous09:58

      His pet project? That thing is 93 years old. It survived everyone.

      Delete
    4. Anonymous10:05

      One day JU is 7 years old, another is 93 years old...

      Delete
    5. Anonymous10:12

      Company is 93 years old. Rebranding was done 7 years ago.

      Delete
    6. Anonymous10:36

      That's hilarious! When having a history means something positive, company becomes 100 years old, when it comes to something negative (financials, bankruptcy, economics etc.) company turns to a baby! I love balkan style!!

      Delete
    7. Anonymous10:38

      What are you talking about? The airline always marks its actual heritage birthday and the birthday it was relaunched. What's your problem?

      Delete
    8. Anonymous10:40

      I don't know which bankruptcy you're talking about? JU never went bankrupt and never filed for bankruptcy in its entire history.

      Delete
    9. Anonymous10:41

      That was an example.

      Delete
    10. Anonymous10:50

      Let's see if some other airlines, for example W6, makes it to 93 years.

      Delete
  14. Anonymous09:39

    I doubt the Serbian government will put money in without increasing their stake. The question is, will Etihad also put some money in to keep their stake and whether the government would only take say 20% of the share and leave Etihad as a symbolic shareholder.

    ReplyDelete
  15. Anonymous09:46

    The truth is that Etihad created Air Serbia and now the state wants it back. I am not sure if the government will be able to maintain the same level. Fears of previous Jat reappearance might be highly likely.

    ReplyDelete
    Replies
    1. Anonymous09:48

      The point of return to the previous state of Jat was in is highly unlikely. Things have changed in the company from its core. New people have been hired. People have been trained by EY. It's a different story.

      Delete
    2. Anonymous09:58

      Well, after you hear all things that Zoka said you will think totally diferent...

      Delete
    3. Anonymous10:00

      Zoka has nothing to do with Air Serbia...

      Delete
    4. Anonymous10:05

      But Zoka is a minister of Transport in the Republic of Serbia, the owner of Air Serbia.

      Delete
    5. Anonymous10:07

      No, she isn't.

      Delete
    6. Jatovac18:48

      well, she was until yesterday. Nothing happened in past 24h

      Delete
  16. Anonymous09:59

    This was to be expected

    ReplyDelete
  17. Anonymous10:20

    The money the government spent in JU at least shows some results. The company has expanded, fleet has grown, new routes launched, innovations introduced. At least you get something back for the investment.

    ReplyDelete
  18. Anonymous10:25

    I have read so many times on here by commentators how "this is the end of JU", yet they keep flying and strengthening their market position. Just a month ago people were predicting their demise because of the EAP loan. And we see nothing happened and they repaid it.

    ReplyDelete
    Replies
    1. Anonymous10:28

      +1

      Delete
    2. Anonymous10:45

      People thought that because JU said they dont are not able to pay a whole loan so they wanted to cut payments. We all remember they wanted a huge cut.

      Delete
  19. Anonymous10:26

    Air Serbia operates better as an independent carrier than it did under Etihad management.

    ReplyDelete
    Replies
    1. Anonymous10:28

      Air Serbia benefits from having a huge codeshare with Etihad. They help fill Air Serbia's regional routes in particular. Also JU is in EY's frequent flyer program.

      Delete
    2. Anonymous17:29

      Without flights to Abu Dhabi the codeshare is inactive .

      Delete
  20. Anonymous10:27

    As long as they keep professional managers I am fine with that

    ReplyDelete
  21. Anonymous10:27

    This is actually great news.

    ReplyDelete
  22. Anonymous10:30

    This contract with Etihad was always meant to be a temporary one and for Etihad to manage the company until local workforce is prepared to take over. This has, in my view, been done for the most part.

    ReplyDelete
  23. Anonymous10:31

    The vanity project of Mr. President...

    ReplyDelete
    Replies
    1. Anonymous10:38

      That moronic statement has been debunked in earlier comments. Airline is 93 years old and outlived any and all rulers. It is no one's pet project.

      Delete
    2. Anonymous10:56

      JU is his project.

      Delete
    3. Anonymous11:04

      LOL, IATA sign JU stands for Jugoslavija. Where was Yugoslavia in 2013? JU is not his project, it existed for many decades before he was born.

      Delete
    4. Anonymous13:05

      ASL is his project.

      Delete
    5. Anonymous15:35

      Anon 13:05 Nope, it's not. It would help if you could learn a few things before making funny statements. ASL rebrand is not a vanity project, it is just a continuation of efforts to revitalize and rebrand Jat that went on for years and someone would have done it sooner or later. You would be surprised who's pet project originally it was.

      Read pages 170&171 from the autobiography "I, tycoon". Tycoon #1 admits that was supposed to be HIS pet project. He even says: "odabrali smo i novo ime kompanije. Verujem da ce vam zvucati logicno i poznato: Er Srbija." Then he blames the failure on Tadic.

      Dinkic then took over and he should actually take the credit for bringing it to the finish line. Now you know.

      Delete
  24. EY investment into JU to match the Serbian government can be done at very little cost: sign over a couple of wide-body airplanes. They have a lot that will be sitting in a garage for the next few years due to the pandemic.

    It looks like EY is failing as a partner, given that it hasn't caught onto the fact that Serbia only 1 of 4 countries in the EU (including Croatia/Macedonia) that allows American Tourists and the FL for the New York flights have been over 80%. A large number of Americans are posting videos promoting Belgrade and Croatia for the past 3 weeks. I would have expected EY to add another wide-body to increase frequencies to their "partner" where they have 49% ownership!

    ReplyDelete
    Replies
    1. Anonymous11:46

      Taking on additional aircraft would increase JU's expenses and the question is whether you will create greater losses just for short-term revenue. I know for a fact that JU was offered planes by Etihad from Alitalia (A320s) a few years ago but the former management of JU rejected it because it was too costly for them.

      Delete
    2. Anonymous11:48

      EY have recently done sale-and-leaseback of quite a lot of widebodies, to try and plug the big hole in their finances.

      Plus, I'm certain they would rather let go of their share in JU than just give them couple of aircraft for free, even in these times.

      Delete
    3. leasing or sub-leasing planes to JU for no cost is sensible alternative, but not widebodies
      unfortunately, JU re-negotiated lease contracts months ago

      Delete
    4. JU330 is definitely not losing any money, I would say it is the best preforming AC in their Fleet. Flights and Cargo to JFK is killing it, so those people saying that the second wide-body would make them lose money is honestly making none sense. They need to get a secind wide body ASAP.

      Delete
    5. @LaneHotLane +1000

      This is something that we would expect a co-owner with Wide-bodies sitting around collecting dust to bring forward. The lack of initiative of the EY management is pitiful.

      Delete
  25. Anonymous11:44

    Do we know yet who paid for the EAP loan? Did the government give money? Etihad? bank loan?

    ReplyDelete
    Replies
    1. Anonymous11:50

      No one knows. Maybe they had some reserves. Although I doubt it.

      Delete
  26. Anonymous11:47

    I'm pretty sure EY will stay and Serbian government will pump more money.

    ReplyDelete
    Replies
    1. Anonymous11:49

      Why do you think the government would allow something like that?

      This is a extract from an article on here from a few months ago

      The Serbian Minister for Construction, Transport and Infrastructure, Zorana Mihajlović, has said the country will consider buying new aircraft for its national airline and purchasing back Etihad Airways’ 49% stake in Air Serbia. Ms Mihajlović noted, “Perhaps we will acquire some additional aircraft and we will consider discussion over the buyback of shares from Etihad Airways. Why wouldn’t we buy them back? This situation has clearly demonstrated how important it is to have a national flag carrier. There was a lot of criticism directed towards Air Serbia and questions as to why we have a national airline. Now we can see how important it is. Air Serbia has demonstrated its social responsibility. Now it is our turn to create the necessary conditions for it to be able to commercially function”.

      Delete
  27. Anonymous12:04

    Good luck

    ReplyDelete
  28. Why nobody is talking about the 80 AirSERBIA cabin crew that won’t have jobs from November 1st!?

    ReplyDelete
    Replies
    1. Anonymous12:28

      Why? You think they should hire more crew in the middle of the aviation industry's biggest crisis?

      Delete
    2. Anonymous13:32

      80 cabin crew to be paid to stay "stand-by" at home, are you crazy?! - Emirates and other airlines decreased number of employees due covid.

      Delete
    3. Anonymous23:10

      Hey, Anonymous12:25 will they finally send to retirement old Jat airways cabin crew members who are in their 60s, and spare younger ones?

      Delete
  29. the total cost of killing JAT is close to 1bln USD now
    imagine if serbia invested that money in agriculture, mining, production of any kind...

    currently, this makes sense as much as investing in serbian space program

    also, payback option is fake. JU is breakeven business at best

    ReplyDelete
    Replies
    1. Anonymous16:26

      Your caclulations are based on what? Crystal ball?

      Delete
  30. Anonymous16:55

    So aid could be quarter of a billion euros or more. Wow!

    ReplyDelete
    Replies
    1. Anonymous17:10

      Or it could be less...

      Delete

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