Armenian flag carrier claims airport spat settled

By bne IntelliNews March 16, 2012

Clare Nuttall in Almaty -

Armenia's flag carrier Armavia announced on March 15 that it has settled a long-running dispute with Yerevan's Zvartnots International Airport that had threatened to ground its fleet indefinitely.

After a tense week of negotiations, Armavia says it has agreed a payment schedule for a €5.3m debt with the operator of its hub, Armenia International Airports. The airline agreed to pay the debt in full by September 2012, with the first installment due on March 31.

The airline says it has also reached agreement on ground service prices, which Armavia complains are unreasonably high by international standards. On March 6, Armavia threatened to cancel all flights to and from Armenia until the airport agreed to lower its charges by 25%. Mikhail Baghdasarov, the airline's majority shareholder since 2005, told journalists Armavia might be forced to file for bankruptcy unless the charges were reduced.

An Armavia spokesperson told bne that the latter agreement is the key. "The issue was that charges for airport services were too high. We were getting no discount as the national carrier, unlike national carriers in other countries," the spokesperson said. "Now it has all been solved. We have already drawn up a schedule to pay the debt."

However, it remains to be seen if things will be that easy. The pair announced an earlier deal on March 13, but that only lasted a matter of hours before it fell through. Despite the heavy involvement of government mediators, the two companies accused each other of going back on their promises the same day as the announcement.

Armernia has already faced the bizarre situation where its flag carrier is banned from using the country's main air hub during the long-standing dispute. Armavia was temporarily barred from flying from Zvartnots on November 3, 2011, with the airport complaining that its debt had reached twice the agreed level.

Conspiracy theories abound, with some claiming Baghdasarov wants to force his own company into bankruptcy, and others speculating that the high service charges are a ploy by Armenia International Airports owner, Argentinian-Armenian businessman Eduard Eurnekian, to help him acquire the airline.

Armavia has expanded rapidly since it took over the bankrupt Armenian Airlines' international licence in 2003. The company was then reported to be mulling an IPO in London to tap international funding for further expansion, but this was put on hold with the onset of the international financial crisis. Despite such pressure, as well as that of rising global fuel prices, Armavia has continued to invest into its fleet, and became the first commercial airline to put Russia's new Sukhoi Superjet into operation in 2011.

However, Armavia has also run in to difficulties on its vital Russian routes recently. On March 6, Rosnavigatsia - the Federal Air Transport Agency - banned Armavia from entering Russian air space until it paid a $178,000 debt for Russian air navigation services in December. However, flights were resumed the same day after emergency talks in which Armavia agreed to pay by March 20.

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