Near-bankrupt national carrier Cyprus Airways will be kept operational for now but it must undergo drastic restructuring to ensure its immediate future, the government said on Wednesday.
Government spokesman Christos Stylianides said the state-owned airline would be kept going through the summer so as not to leave tens of thousands of tourists who have pre-booked holidays on the Mediterranean island in the lurch.
With Cyprus reeling from the devastating terms of a eurozone debt bailout that crippled its once lucrative financial sector and ushered in years of austerity and a sharp recession, tourism is the island’s main hope of light at the end of the tunnel.
"The cabinet today decided, for very specific reasons, mainly relating to the summer tourism season, that it would be desirable to keep the company alive," Stylianides told reporters.
"So as to complete the summer season with the aim of finding a buyer-strategic investor as soon as possible."
Stylianides said the cabinet decision was conditional on management and trade unions swiftly agreeing on the "necessary restructuring and downsizing" of the airline.
The spokesman described the airline’s current plight as "very difficult and fragile."
According to trade union estimates, the company has pre-sold 400,000 seats for the summer holiday season.
State radio said the preferred downsizing scenario was for the 1,030-strong workforce to be reduced by at least half to around 500 and its 11 Airbus fleet reduced to six plus one in reserve.
It said that a potential Lebanese strategic investor was expected to arrive for talks next week.
The cabinet decision came as some 300 Cyprus Airways staff protested outside the presidential palace chanting: "No unemployment," and: "Don’t destroy Cyprus Airways."
The struggling airline posted a loss of 55.8 million euros after tax for 2012, more than double the net loss of 23.88 million for the previous year.
Total revenue dipped 17.6 percent to 175.5 million euros in 2012 from 212.9 million in 2011.
Operating losses for 2012 almost doubled to 49.7 million euros from 25.5 million in 2011.
The airline has also struggled to compete with no-frills competition on popular routes to Greece and Britain.
Last month, the carrier said its future depended on it receiving rescue aid through a 31 million euro government share capital injection which would be subject to European Union approval.
But EU executive arm, the European Commission, launched an investigation into whether the money that the state has pumped into Cyprus Airways breached competition law.
For the past six years, the airline has stumbled from crisis to crisis, relying on government support to keep it operational as rescue plans have come and gone.
In March, EU competition regulators launched an "in-depth" investigation into whether 104 million euros in state aid granted to the airline complies with the bloc’s state aid rules.
And the European Commission said, at this stage, it doubted whether the airline’s capital increase was conducted on market terms.
It is also looking into a 73 million euro rescue loan provided by the government in December last year.
The Commission emphasised that no further state aid measures in favour of Cyprus Airways should be implemented without its prior approval.
Under EU rules public support measures constitute state aid if they were not made on terms that a private player operating under market conditions would have accepted.
The Commission said it appeared loan payments were made this year without its prior approval.
Cyprus Airways also received rescue and restructuring aid in 2007 but continues to bleed money.
It currently operates scheduled flights to 41 destinations. [AFP]