Mismanagement, ineptitude and too-close ties with political parties and the government, led to Cyprus Airways’ downfall, the company’s legal advisor Polys Polyviou has said.
Appearing before an ad hoc parliamentary committee, which is examining 30 years’ worth of company documents, Polyviou said that “Cyprus Airways was a miniature version of Cypriot society, and as such had its [society’s] positive and negative traits”.
One example he gave was of a former CY general manager who had used a company jet to transport his son’s car abroad, the bill for which was footed by CY and the taxpayers.
Auditing company KPMG’s managing director Andreas Christofides who was also at the hearing provided disturbing accounts of how CY was being exploited in the 1980s.
He told how a former manager Evdokios Savva, had set up a secret London bank account where so-called politically vulnerable people would send money there to pay for their airline tickets. However, CY never received the money because the manager had syphoned it off into his own personal account. It was at that time that KPMG was appointed to audit the company’s books after Savva resigned in July 1981.
When the fraud had been unearthed, an arrest warrant was issued for Savva who promptly vanished and currently is thought to be living in the US.
Christofides also referred to monies that were misappropriated from the employee welfare fund and used to pay overtime money to the manager’s secretaries. Elsewhere alterations to a CY building at the old Larnaca airport had been charged at over 60% of the original cost.
Following the scandal created by Savva, the government decided that the airline’s management would come under closer scrutiny.
When Stavros Galatariotis took over the management team, Legal adviser to CY Polyviou said President Spyros Kyprianou had kept a close eye on the airline and that Galatariotis routinely “knocked on Kyprianou’s door to submit his requests.”
Galatariotis however, probably to encourage oversight, enhanced political party involvement in decision making by requesting that representatives from all parties sat on the board.
“The signs were there and can be seen in the very close cooperation of the state and the company. No government has ever let Cyprus Airways operate based purely on company law,” Polyviou said. CY never called on impartial expert advice when taking major policy decisions and only relied on input from the government and political parties, he added.
As a result of which, Polyviou said that the “tragic” decision was made to buy out the 20% share held by British Airways in CY in 1983 and to expand the company’s fleet. “Driving out British Airways deprived the company of a major strategic investor,” he argued.
CY acquired further dead weight from its charter subsidiary, Eurocypria which went under in 2010.
Polyviou said that when the EU looked into the internal running of Eurocypria, they found evidence of mismanagement, such as overcompensation for retirement schemes and bloated staff bonuses.
Following the South Cyprus government’s request in 2010 for EU approval of a state aid package to keep both companies afloat, EU officials had said: “You are trying to save Eurocypria when you should be concerned with the fact that in two years’ time you will be called upon to prevent the shutdown of Cyprus Airways.”
Another white elephant Polyviou referred to was Hellas Jet which offered flights to Athen, founded by CY in 2003. Hellas Jet suffered heavy losses and was forced to shut down in 2005. The company was sold off in 2006.
The following year, former President Tassos Papadoulos, at a Cabinet meeting, had said that the company was no longer viable and that it was on the road to bankruptcy. The President was commenting on the 2007 restructuring plan that was submitted by the state to the EU commission. According to Polyviou, Papadopoulos had said then that the plan was CY’s last chance for survival.
Cyprus Airways was ordered to cease operations in January 2015, after the EU Commission ruled that the company had to return around 66 million Euros in state aid that it had unlawfully claimed in 2012.