Who will buy Armavia?

by Susanna Petrosyan, Yerevan. Exclusively for Vestnik Kavkaza

Armavia, the national airline company of Armenia, stopped flights and went bankrupt on April 1. “The company’s owner has been allocating funds from other areas of business to maintain development of the company in the last three years. But today, the situation has changed in such a way that such actions can no longer continue, so it was decided to stop flights and start the bankruptcy procedure”, the official statement of Armavia says. Money for tickets sold will be paid back.

Armavia is owned by Mikhail Bagdasarov, a friend of President Serzh Sargsyan and one of Armenia’s largest entrepreneurs.

The bankruptcy of the company was predicted a year ago. The International Airports of Armenia Company (owner of the Zvartnots) servicing Armavia was cancelling flights occasionally due to a debt of 5 million euros. Cancellations and delays of flights were a problem for Armenian aviation as a whole.

Bagdasarov said that the company would go bankrupt unless the Zvartnots owner reduces service fees by 25%. The airport’s press service responded by saying that “the service fees had been the same for three years. “No changes in fees at the airport have been made in the last few years, the price for fuel depends on the prices set by Mika Limited, a company belonging to Bagdasarov. Concerning fuel prices, there is a state-regulated margin that depends on wholesale prices and the airport cannot exceed the margin when supplying Armavia”.

The company’s owner lacks logic in the economic situation. Bagdasarov expressed no grievances about the airport’s prices during some of the hardest years of 2009-2010. On the contrary, he insisted that the global recession had brought Armavia benefits, the company purchased a set of flight routes from large airline companies and planes from bankrupt companies.

In 2012, the economy started going uphill and the owner of the national airline company suddenly started demanding a reduction of prices. So how did the company with a monopoly that had been surviving the most recessive times suddenly end up bankrupt? Specialists say that even a monopoly does not allow Armavia to work efficiently.

“The causes of Armavia’s bankruptcy are many-sided. The main reason is provincial greed” You cannot grant a man a whole industry when he has no assets in such a business. Everything was leased. Such a policy is aimed at doubling, robbing and giving nothing in return,” Shagen Petrosyan, former head of the State Directorate for Civil Aviation of Armenia, stated.

Petrosyan does not believe that the expenditure of the air company exceeded its income: “The industry has always been profitable and the company has been accumulating debts for 10 years, ending up on the brink of bankruptcy as a result of improper fee policy, choice of routes, poor business plans and purchases of planes under disadvantageous conditions. Armavia offers services at exaggerated fees, compared with some European and Middle Eastern companies and even the companies of Tbilisi.”

A year ago, Armavia staff started a strike and the company failed to make flights to Russia, using the high fees of Zvartnots Airport as an excuse. It was later revealed that the Russian Federal Air Navigation Service had banned flights of Armavia to Russia due to debts. The company paid them off and renewed flights. Armavia owes Russian airports about 45 million rubles. In addition, it needs to pay Russian banks over $20 million.

In 2000, Armenian Airlines became the first state-owned air company to go bankrupt. The company had an income of $5 million a year. According to some data, the company went bankrupt through a corrupt scheme. It was made bankrupt to give Defense Minister Mikhail Bagdasarov a route for promotion. He became the owner of the newly-formed company Armavia. The government believed that a private owner would boost the airline industry, although it has never happened.

According to unofficial information, the Armavia owner was negotiating the sale of the company to foreign investors. There are no Russian buyers, but there are purchasers from Italy, Australia and the East. Taking into account Armenia's characteristics and the topicality of corruption schemes and the fact the aviation was a juicy piece of the “economic pie” of Armenia, a new private owner may appear, promising to solve all the problems of aviation.

The deal between Armavia and the government expires on April 22. Some specialists propose appointing a government official, forming a commission to analyze the bankruptcy caused before liberalizing the industry.

James Akopyan, an observer of Lragir, expresses confidence that both the government and the parliament should work on the case and form a commission as soon as possible to investigate the problems of the strategic field of air transportation.