Government officials decided to deprive Ukrainians of inexpensive air travel

Some foreign airlines time to make feet

Photo: PHL

From now on new flight destinations will be issued exclusively to Ukrainian airlines. The National Aviation Service adopted the rules regarding the procedure for issuing and cancellation of rights for the use of airlines, NAS Chair Denys Antonyuk informed Capital. He says the decree was adopted on October 24 and registered by the Ministry of Justice on November 13. “The document will be officially published in the press in the nearest days,” says Antonyuk.

Other regulations

In order to be issued a right to perform flights to a regular international or charter destination the owners of airlines will have to be disclosed. Airlines that are fully controlled by the state or Ukrainian citizens or more than 50% of the statutory capital is owned by either of them will be granted the right to use of international regular or charter airlines, Antonyuk pointed out.

Foreign players that are owned by foreign individuals operating on the Ukrainian market though affiliated companies will not be granted rights by the NAS. Today, the co-owners of all leaders on the airline transport market in Ukraine are foreign companies. For example, Wizz Air is owned by Hungarian businessman Jozsef Varadi and UTAir-Ukraine is owned mostly by UTAir-leasing and controlled by the president and co-owner of the Russian petroleum and gas company Surgutneftegaz Vladimir Bogdanov.

15.91% of Ukraine’s largest air transporter Ukraine International Airlines (UIA) is owned by the Cypriot company Ontobet Promotions Limited and 74.16% is owned by Capital Investment Project, Ltd. The latter is controlled by the Ukrainian company Investment Projects Management, which is controlled by Cypriot Ontobet Promotions Limited. Mass media have claimed more than on one occasion that UIA is controlled by Governor of the Dnipropetrovsk Oblast Ihor Kolomoyskiy, though the latter denied this fact.

“The UIA airline company will have to disclose its owners… If it is learned that the company is owned, for example, by a citizen of Israel and not Ukraine, it will not be assigned a flight destination,” said Antonyuk. He said the introduction of such a norm is dictated by the need to guarantee the transparency of market relations in the aviation sector and disclosure of the true owners of the airline, which will have a direct impact on security of flights conducted by the airline.

The new order includes other innovations. For example, the rights to perform regular international flights will be granted on condition that air transporters fulfill regular domestic flights in Ukraine for no less than 12 months, said Antonyuk, though he specified that this norm will only take force a year after the aforementioned decree is approved. “This norm will stimulate the airline to increase domestic flights, which will have a positive impact on the development of Ukraine’s internal market and allow for expanding the geography of air connections on the market and will lead to a reduction in the fares for domestic flights,” it was stated in a press release of NAS.

Foggy future

Industry experts took the initiative of the NAS with caution. “We must have more details about the new project before commenting on it. Wizz Air Ukraine supports the liberalization of the Ukrainian airline market and establishment of a fair process of assigning destinations that offers all players on the market the same opportunities,” says General Director of Wizz Air Ukraine Akos Bus.

Head of the Aviation Transport Department of the Ministry of Infrastructure of Ukraine Valentyn Zgurskiy does not support the introduction of the norm that requires an airline to fly on domestic territory in order to fulfill international flights. He attributes this to the low volume of the domestic airline market that was severely narrowed by the financial crisis.

“Most probably the National Aviation Service decided it was necessary to create conditions for development of the domestic air carriage market. Indeed, today the majority of air carriers are exclusively focusing on performing international flights as they believe they are more profitable,” says Senior Attorney of the law firm ECOVIS Bondar & Bondar (representing UIA) Yulia Dmitrieva.

The consequences of the new order will include monopolization of the market, a hike in fares and worsening of the quality of services: “I totally do not understand why an airline must be forced to fly on domestic routes. When there was demand, the airlines themselves announced their desire to fly to Donetsk, Lviv and Crimea,” says Zgurskiy. Regional flights in Ukraine were always inherently subsidized and did not turn a profit, Assistant Director of Commerce of the online service Tickets.ua Viktor Voitsekhovskiy agrees.

The only advantage they give is that they generate the transfer flow, thus ensuring that passengers get to Kyiv, he continues. This means that it only makes sense for airlines with a large international network and transit model for passenger flow to operate, says Voitsekhovskiy. “In Ukraine there is only one such airline – UIA. The conclusion is that the said law practically closes the Ukrainian skies for new airlines,” he noted.

The norm on mandatory control of airlines by Ukrainian citizens can be circumvented, senior lawyer at the Marchenko Danevych law firm Andriy Huk. “For example, this can be done by conveying 51% of an airline to a nominal owner, i.e. citizen of Ukraine,” he said. However, the high risks of corporate disputes will scare off investors, the lawyer believes. For this reason, when investors decide which country to invest their money into the airline business, they will most likely bypass Ukraine.