Kiev-based Ukraine International Airlines (UIA) is in financial trouble with its capital stock nearly exhausted. Without a major cash injection the carrier’s existence seems to be at stake. To prevent the worst, the management has urged Ukraine’s government to grant a stabilization loan of €78.5 million for a period of ten years.
The reasons are manifold as to why UIA’s coffers are nearly empty. Above all, the airline suffered most as result of the Kremlin’s decision to close Russia’s airspace for all Ukraine licensed airlines. Russia and the neighboring CIS states have traditionally been the backyard of UIA both for passenger and cargo transports. But since the carrier has politically been cut off from its eastern routes the former biz model has gone to ashes: transiting passengers and considerable amounts of cargo shipments between West and East via its gateway Kiev Boryspil International Airport.
Further, the rapid decline of Ukraine’s national currency hryvnia against the euro and dollar impacted the carrier negatively, with drastic effects on its revenues. This goes hand in hand with reduced traffic volumes and the partial loss of UIA’s home market in the eastern part of the country due to Russia’s Crimea annexation and the occupation of large areas in the Donetsk and Lugansk region by Russia influenced separatists.
Little prospect of improvement
In view of these unfavorable circumstances it doesn’t need much fantasy to predict ongoing losses for UIA since neither the passenger nor the carrier’s cargo traffic will be restored soon.
In fiscal 2014, the carrier is expected to lose about €50 million and in Q1 of 2015 an additional €28 million will supposedly be added to the operating deficit. "Due to the constantly deteriorating financial situation the risk of Ukraine’s flagship carrier drifting towards insolvency is more than realistic," warns the business mag “Capital”.
However, getting a stabilization loan is not as easy as it may sound.
According to WTO rules, state funding of an airline is subject to very strict conditions or else the decision can be interpreted as illegal subsidiary which adversely affects competition.
Still some homework to do
Whatever the outcome might be, prior to filing a formal loan application to Kiev’s government UIA still has some homework to do. This becomes all the more pressing in view of the fact that the government still lacks exact information on the carrier’s financial situation. But begging for financial aid by the state doesn’t suffice. Even more important for improving the financial situation is a new strategy how to streamline operations and cut costs. To all what’s known, UIA still hasn’t developed such plans.