2013 turned out to be a very difficult and very eventful year for the Ukrainian aviation industry. The fall of the largest carrier in the country at the beginning of the year led to the long-awaited redistribution of power in the market, but this redistribution was not too drastic because the baton was simply passed to its main competitor, which had been more of an ally latterly. The entire period was marked by recovery of the volume of traffic that was lost due to such radical changes.
The Bankruptcy of AeroSvit
The AeroSvit airline company began showing worrying signs during the global financial crisis of 2008-2009, which was accompanied by personnel reduction and fleet downtime. The airline company was unable to recover from the crisis fully despite the rapid development of its route network in the period of 2010-2011. A stabilization credit of USD 30 million from new shareholders helped AeroSvit to stay afloat. However, the company’s financial results became more alarming every year. Despite the rapid development of its route network, the losses of the flagship carrier inexorably grew just like its debts to creditors. This was not surprising because the launch of new routes required investment that could be repaid only after some time. However, the airline company launched a number of routes for political rather than economic reasons. Its aircraft flew only 8-9 hours per day compared with the necessary 12-14 hours.
Having accumulated a debt of UAH 4.27 billion by the end of December 2012, AeroSvit decided to seek protection from its creditors by filing for bankruptcy. Upon learning about this, its international partners began urgently to terminate agreements on joint operation of airlines, mutual recognition of documents, and many others. The International Air Transport Association (IATA) excluded the company from its Billing and Settlement Plan (BSP). As a result, the operations of the former flagship carrier were paralyzed.
The consequences of the collapse of the airline company were very painful for the market. About 2,000 people employed by AeroSvit lost their jobs. However, that was not all. The company had always staked a claim to the network carrier model, developing transit operations via the hub airport Boryspil. Following its collapse, passenger traffic through the country’s main airport reduced by 18% in January and by 25% in in February. There was no demand for space in the airport’s new terminals, and the company mothballed its Terminal F in 2013 while the once-overcrowded Terminal D handles domestic flights temporarily. The effect of AeroSvit’s bankruptcy will also result in a reduction of about 5% in passenger traffic at the Boryspil airport in 2013, compared with 2012.
The collapse of AeroSvit and the entire Ukrainian Aviation Group alliance slightly redistributed power in the market, with Ukraine International Airlines (UIA) becoming the market leader. Wizz Air Ukraine, the only low-cost airline company in the country, has visibly moved into the top five. A subsidiary of the UTair airline company (Russia) is developing its operations on the Ukrainian market. However, far from every airline company has operated successfully since the collapse of the largest airline company in the country...
The Suspension of Air Onix’s Operations
The market may witness another bankruptcy at the end of this year or the beginning of next year. Air Onix, a company that is believed to have strong support from Prime Minister Mykola Azarov, began actively to develop its route network from Simferopol. In addition, the carrier operated flights from the Zhulyany airport in Kiev and some of AeroSvit’s routes were allocated to it after the collapse of AeroSvit.
However, the first alarm bell sounded in the autumn of this year. Media reports emerged of a conflict between the carrier and a leasing company that wanted to return two aircraft from Air Onix’s fleet because of debts. However, the airline company itself claimed that the amount of its debt to the leasing company was not critical enough to warrant return of the aircraft and suspension of its operations. However, the bad signs reappeared after some time. For example, the company stopped flying on the Kiev-Donetsk route in December, citing a fall in demand due to the pro-European protests on the Independence Square. The airline company later suspended its remaining flights due to debts to various service companies and began offering ticket refunds to passengers. Air Onix was unable to fulfil its promise to resume operations on December 19, although the airline company announced plans to resume operations in the new year during negotiations with the Zhulyany airport. However, market participants consider this unlikely.
The Initialing of the Agreement on a Common Aviation Area with the EU
Negotiations with the European Union on liberalization of the aviation market began in 2007, but the negotiations progressed at a fairly sluggish pace because work with European industry legislation required time and acceptance of its conditions meant putting Ukrainian carriers at a disadvantage compared with their Western competitors. At that time, the growth of the Ukrainian market was impressive and this attracted Europeans. This was followed by the global financial crisis of 2008-2009, which significantly dampened the enthusiasm of all the interested parties. However, the negotiations continued, with both parties fighting long and hard over the main obstacles - recognition of Ukrainian certificates in the European Union, the possibility of continuing operation of Ukrainian aircraft, and determination of the “freedoms of the air” for airline companies. The negotiations came to the logical conclusion ahead of the Eastern Partnership summit in Vilnius (Lithuania) in November 2013, during which Ukraine initialed this agreement on conditions that were sufficiently forgiving of it.
Let us begin with the fact that Ukraine assumed the obligation to introduce European norms on its territory, but it does not bear serious responsibility if there is no opportunity to introduce them. Additionally, the intergovernmental agreements that regulate the number of designated carriers, as well as the geography and frequency of their flights will be discontinued following the signing of this agreement. However, airline companies still have only the third and fourth “freedoms of the air,” which allow them to fly from their countries to another country and back. The intergovernmental agreements will be abolished only after the signing and introduction of the agreement on Common Aviation Area.
The issue of certification of Ukrainian aircraft was separated from the agreement, and all locally manufactured aircraft now have the right to fly within Ukraine while their certification in the European Union will require submission of the relevant applications when their manufacturers are ready.
The Start of Delivery of An-158 Aircraft to Customers
2013 also brought important developments in the aviation industry. It is known that production of aircraft in Kiev has been very difficult lately. However, the Antonov state enterprise managed to deliver the first serially produced An-158 aircraft to a Cuban airline company in April this year. A second An-158 aircraft was sent to Cuba in late July. The customer received a third aircraft during an air show in Dubai. Another aircraft was expected to be delivered to the Cubana airline company before the end of the year, but there were difficulties manufacturing the chassis for it at the Pivdenmash plant. It is hoped that aircraft manufacturers will be able to overcome all obstacles and successfully complete their programs.
The Change of Leadership at the Boryspil Airport
It is no secret that the authorities and market participants were dissatisfied with the performance of Anton Volov in the post of general director of the Boryspil airport, the country’s most important airport. In spring 2011, Deputy Prime Minister Borys Kolesnikov criticized the airport’s former head Borys Shakhsuvarov for poor organization of the airport’s operations. He was contemptuous of Shakhsuvarov’s experience at the Domodedovo airport, saying that it would be another matter if Shakhsuvarov had managed a business like the Singapore airport. It was therefore a huge surprise when the head of the Ministry of Infrastructure appointed as his replacement a 31-year-old man whose experience in the aviation industry was significantly less than that of Shakhsuvarov. Volov was the financial director at the Donbasaero airline company and the deputy head of the national agency for Ukraine's preparations for the 2012 European football championship, during which he was responsible for construction of stadiums and airports. His insufficient experience told, as the Boryspil airport’s expenditures increased because of the frequent use of the services of industry consulting companies. In addition, an embarrassing incident involving the Ukrainian presidential airplane dealt a blow to the reputation of Volov. A ramp damaged the presidential Airbus-319 in October 2011, after which Volov was suspended from his post pending an official investigation. The influence of Kolesnikov allowed Volov to retain his post and even keep the post for a while after Kolesnikov left the post of deputy prime minister to take up a seat in the parliament. However, his dismissal was only a matter of time. Oleksii Kochanov, who has significantly more management experience in the industry, was appointed as the head of the Boryspil airport in July 2013. Kochanov previously held leadership positions at the AeroSvit airline company and was the general director of the Odessa airport.