Armavia has put debt on the state
Interview with Shahen Petrosyan, former head of Civil Aviation Board
-The term of the agreement between Armavia and the government is ending on April 22. Do you think the agreement may be extended and why did Armavia announce about suspend its operation starting from April 1?
-My opinion is that the government should not extend the agreement with Armavia; the government should audit the airline company and find out what are the reasons that brought the company to bankruptcy. They should investigate to find out the reasons why one of the most profitable companies in Armenia went bankrupt. There are many reasons; I cannot speak till the investigation is over. For example, people say one of the reasons is high prices of tickets. I can’t say why it is expensive but I know how to reduce the price.
Obviously the expenses are high. Airline ticket prices are formed based on prices of oil and other components, For example, in 90s when we were operating flights with Soviet aircrafts such as IL-86 and TU-154, about 40-50% of the ticket price went to cover these expenses.
The Airbus carriers they are operating now are spending by 3-4 times less oil, which means that only 20% of the ticket price is paid for oil. For example, now in Europe airline companies that are dynamic and operative such as Jet Air, Easy Jet and Ryan Air are small but very profitable as they are operating mid-distance flights with small aircrafts and they have the 6th freedom in all airports (6th freedom in aviation is the type of passenger transportation when small aircrafts can pick up passengers from any airport, like taxi cabs). Such companies generally do not give food on board and the service is very fast; passengers go directly into the plane and do not send their luggage separately.
Such company should be established to work in the same manner as Ryan Air or Easy Jet and operate mid-distance flights, for example to Sochi and other locations at similar distance. The price of Yerevan-Sochi ticket is more expensive than the price of the ticket for Yerevan-Frankfurt flight by Czech Airlines. This is nonsense because the distance from Yerevan to Sochi is four times shorter. There must be such small company, which will help to reduce the prices.
The next important thing is the airport service. The issue of Armavia’s bankruptcy should be viewed in the context of its relations with the airport. They should audit the airport too and there must not be people with immunity, either Ernekian or anybody else, who can do anything they want. The prices offered by our airport do not correspond with the prices accepted internationally. I am generally against the term “National Carrier.” People are using this term often; it’s wrong. Such understanding does not exist since 1960s, when the sector was liberated in the world. During the Soviet time Aeroflot was the ministry of aviation. At that time this company was the only one and it could be the national carrier. Now, when the market is liberal, no private company can be a national carrier. Armavia does not have private airplanes; all airplanes are leased. It does not have its own office premises either as everything is rented from the airport. During my office the Armenian Airlines had its own building and offices.
Catering is important in this context too. At that time the price of the catering service per passenger was a couple of dollars, but as soon as it was privatized by Gagik Tsarukyan, the prices went by 4-5 times. Now please imagine how the “laundering” is taking place. As far as I know Czech Airlines, Austrian Airline and Air France are not buying this food from them; they bring it with them. As I said many companies do not give food during mid-distance flights as they give juice and candies mainly. Why do they give food during flights to Tehran or Aleppo that last one hour only? This is another way of laundering money. Or, the airport has monopolized the right of serving departures and airline companies cannot serve their passengers in airports; they can serve them inside the planes only. In 90s as there was competition, airline companies could pay a small amount, rent a little space and organize the service for their flights.
-In an interview you said that during your office the aviation sector was not privatized and liberal. In answer to a question the aviation board chairman Artyom Movsisyan said that making the sector liberal could last long and it could be done slowly, however he said “the government should adopt a policy for that purpose.” What do you think needs to be done to make this sector liberal?
-I spoke about the audit already. Second, the government should appoint a manager and start everything from the beginning again to investigate how Armenian Airlines was forced to bankruptcy; billions had been spent on that company to make it the national flag carrier as a brand. I have numerously said that we were among the first ten companies in Europe with aggressive policy. Our entire plan was based on mid-distance flights up to 4-5,000 kilometers. The remotest destination was London, and we were selling connection flights to other destinations above that. Now they are speaking of opening a flight to Los-Angeles. Such plans are not realistic and will never pay off because the aircrafts they need such as Boeing-747 or similar are very expensive, even if they lease.
Also, they should not give expensive food on board. As the flights are short-distance, the food should not be heavy either, and it will make the price of the ticket cheaper too. The market of oil import should be liberal too; we know how it is done now as the shares of the market are given to specific companies only. They cut deals and make super-profits.
For example, they arrange the import by a company, which sells to another company and buys back at higher rates. During our time we gave licenses to private companies, who served the flights. Now, they are importing, giving the oil to the airport, and the airport is putting its add-on and selling back to the airline company as it has monopoly. In other words, not only airline companies, but the entire sector should be free. They should keep the airport of Gyumri and organize some flights from there as an alternative; they should always try to keep them in competition.
-Rumors say that Gagik Tsarukyan is connected with this process. What is his role in this process?
-I don’t know. There was time that he was managing the flights catering service, which Kocharian gave him as a present. Also, one of his companies is selling airline tickets; this is what his participation can be about.
-Is it possible that Gagik Tsarukyan or another businessman buys the company after bankruptcy?
-I do not want anybody buy this company. If the owner is a person; it doesn’t matter if he is Mikhail Baghdasarov or Gagik Tsarukyan, the company will be in the same situation. I can also make another recommendation: the government may take the licenses for the flights, it does not let Armavia operate the flights again, the temporary management commission manages the flights and restores Armenian Airlines company with 100% state-owned shares, and as the Armenian Airlines get licenses for flights, gradually the shares are sold to people. In other words, the government can gradually privatize the company, but not fully. This is what Air France and British Airways did. Stockowners can later convene a meeting and appoint the smartest person among them in the manager’s position. The world has this practice and the most important thing is not to leave the controlling stocks in anybody’s hands. This is the best transparent form of management. When something is concentrated in one’s hand, this hand takes everything from others; you know how things are done in our country. I do not want to insult anyone, but so far what they have been busy with is only embezzlement; they have been sitting on money and embezzling it. The fact that Armenia does not have its own airplane is the biggest shame.
-Are airplanes so expensive for the state?
-No, if they would spend the money properly. Everything was done with the thinking of a small businessman; they did not have anything and they always wanted to buy something here and sell somewhere else. That is the reason they have leased the aircrafts and did not make long-term investments. Generally I think nobody wants to make long-term investments in this country because they are not sure if the state will protect them. The debt that Armavia has accumulated, which amounts to 20-30 million dollars, is the debt of the government already; if the company goes bankrupt, the government will be the one to pay this money off. Thus, the government should intervene and stop them putting this heavy burden on the society. For example, Armavia owes money to the Russian Air Navigation service, which is a state owned institution, thus it cannot sue the private company, and it will sue the state.
-Are the reforms you said possible in consideration of the conditions and logic of doing business in Armenia?
-I don’t believe in it. Many people say it is different now and they will have to make changes as there are 540 thousand people who stand against them. But I understood from Serzh Sargsyan’s speech that he is not going to make any changes. They think everything is fine, we are gradually moving forward and Europe has already made us an associated member. They are speaking more about the European associated agreement, but it is a general policy and is not done for us specifically. They cannot make it as a flag and wave saying that it was due to our efforts because it was not.
Interviewed by Aram Sargsyan
