Armavia resolves latest dispute with Zvartnots but sale still on

By bne IntelliNews October 17, 2012

Clare Nuttall in Astana -

The Armenian airline Armavia has resumed services after striking a new debt-restructuring deal with its main creditor Zvartnots International Airport, but its majority shareholder, businessman Mikhail Baghdasarov, looks as though he intends to press on with trying to offload the unprofitable airline.

Plans to sell Armavia were announced by the airline management after the latest spat with Zvartnots in late September. A spokesperson for Armavia confirmed to bne on October 12 that negotiations on the sale of the airline were underway, but declined to give any further details.

Zvartnots' management announced on September 20 that it was suspending all Armavia flights until the airline had repaid $5.3m due in unpaid service charges. Armavia had been due to repay its debts to Zvartnots in full by September, under a previous deal struck between the two companies back in March.

The Armavia spokesperson tells bne that flights had resumed after a new deal was agreed. "We have reached agreement and the issue between the airline and the airport has been resolved, so flights are operating again," she said.

However, the suspension in services in September was just the latest in a series of disputes between Armavia and Zvartnots, concerning the level of service charges set by the airport. Flights have been suspended several times in the last year - in November 2011, March and most recently September.

Armavia argues that the service charges at Zvartnots, Armenia's main international airport, are unreasonably high. Baghdasarov, the airline's majority shareholder since 2005, has several times said that Armavia might be forced to file for bankruptcy unless the charges are reduced.

Previously, rumours have surfaced that Zvartnots' owner, Argentinian-Armenian businessman Eduard Eurnekian, had deliberately set high service charges for Armavia in an attempt to force the airline into bankruptcy and take it over. When Armavia disclosed that an Italian company was among the potential buyers for Armavia, this gave rise to speculation that the would-be buyer could be Volare Air Company, which is owned by Eurnekian.

However, PanARMENIAN.Net reported on October 4 that Eurnekian said he had no intention of buying the airline. "I'm not planning to buy Armavia," Eurnekian told journalists at an agriculture forum in Yerevan.

Armavia has grown rapidly since it was launched in 2003, when it took over the international license of the bankrupt Armenian Airlines. However, it has increasingly come under pressure as global fuel prices have increased. In April 2011, Armavia became the first commercial airline to put a Russian-made Sukhoi Superjet 100 into operation, but later cancelled its order for a second Superjet and tried to return the first. However, on October 5, Sukhoi announced that it had reached a new six-month leasing agreement with Armavia on the Superjet.

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