Carpatair
From J4A:
February 7, 2014
A discussion with Mr. Nicolae PETROV, President of Carpatair Why did you resort to voluntary reorganization?
Two main reasons led to the decision of the Extraordinary General Meeting of Shareholders of Carpatair to apply for the protection available under Romanian Law 85/2006. The distortion of competition by Timisoara airport was seriously impacting our financial health and the simple fact that the time needed to obtain compensation for damages was too long for us to continue without protection.
Could you expand on that?
For over five years, since 2008, the competition at Timisoara airport has been distorted; the major competitor has been paying less than a quarter of what we were charged by the airport in spite of the fact that we were the main operator. Effective measures by national and EU authorities to restore the competitive environment are slow in coming. In spite of progress in the Romanian courts, it is hard to predict how much longer it will take to be compensated for the substantial financial damage caused by Timisoara airport. By placing itself under the protection of the insolvency proceedings, Carpatair will gain the necessary time, the appropriate legal status and necessary environment to allow the recovery of what is due to us.
What happens tomorrow with Carpatair? Can you explain the reorganization approved by the court?
It is very similar to the US Chapter 11, providing the company a special legal status with the following forms of protection:
- Freezing debts accrued prior to the date of court approval of the application for insolvency protection (23.01.2014);
- Suspension of all court actions and of the enforcements against the company; - Reorganization of activities as per the Reorganization Plan which will have to be approved by the creditors;
- The reorganisation must be completed in three years, with one year extension in certain conditions; - The right of self-administration; the management led by Nicolae Petrov, President CEO, continues to function normally under the observation of the administrator appointed by the court.
How are you operating in the meantime?
Flights’ schedule has been considerably reduced in the period to the end of March 2014 to fit the very seasonal demand on the regional markets where Carpatair operates. Flights continue only on those routes which are profitable also in the winter as per the restructuring plan applied voluntarily by the company since the end of 2012. The measure substantially reduces direct but also indirect costs during the worst season of the year for the airline industry. The reorganization plan begin drafted will optimise the organisation structure and fleet utilisation.
We aim to increase charter and wet lease operations for third parties. The fact that we own our fleet makes Carpatair particularly competitive on to wet leases. What regards scheduled flights we will operate profitable routes only.
There were 17 airplanes with Carpatair in Timisoara, where are they now?
At the beginning of last year Carpatair was operating a fleet of 17 aircraft, mainly Saab-2000 turboprops and Fokker 70 twin jets. These leased aircraft were returned to the owners. Since then, Carpatair has operated a jet fleet of three Fokker 100 and one Boeing 737, all owned by the company. Starting with the 2013 summer season fewer aircraft have been based in Timisoara. Until April 2014 there will be no scheduled flights from Timisoara.
Will the change from the regional hub and spoke network, to a P2P one generate more efficiency? How important is the shift to charter and wet lease operations?
The heavy distortion of the competition had a very negative impact on most of our hub flights, even if there were feeding passengers from other routes. The new reality determined the actual change in strategy to operate only those scheduled flights which are profitable and to shift a greater focus to charter and wet lease activities. In line with the above, our airplanes are flying at the moment lots of ad-hoc charters from various airports in Europe. The suspension of scheduled flights from Timisoara airport, even if temporary, does not justify the stationing of aircraft here even though we have the main base and the head offices of the company are in Timisoara.
How would the protection procedure affect creditors?
The creditors’ rights are protected by law and the reorganization plan will necessarily have to take their interests into account – after all, the creditors will have to approve the plan. The reorganization plan would allow reimbursement of the debts to our creditors as much as possible. Receiving the compensation for the damages caused by Timisoara airport will allow the company to fully reimburse the debts to the creditors.
What happens to passengers who have bought tickets on cancelled flights?
What about passengers with tickets on flights that are maintained but who no longer want to fly due to the reorganization of the company, how will you proceed?
Passengers with tickets on cancelled flights have already been informed and their rerouting requests or refunds are being processed according to their preference. Passengers with tickets on flights which the company continues to operate have nothing to worry about because under the protection offered by the judicial reorganization procedure, the company benefits from special conditions that allow it to continue operating according to the principle “business as usual”. The same is valid for all charter flights contracts – the company is financially capable to honour all its contracted operating obligations including charter flights. Confirmations on the above can be obtained by contacting the judicial administrator, designated by the court.
ADDITIONAL INFORMATION
Competition Distortion by Timisoara Airport in the Period 2008 to Date
- TSR airport anticompetitive measures began in 2008 and continue up to now
- In January 2014 Carpatair still pays airport charges 4 times (400%) higher than Wizz Air, meaning that TSR airport intervenes directly in the competition by charging Wizz Air passengers four times less than Carpatair passengers;
- The European Commission investigation SA.31662 of 24.05.11 is on-going;
- An investigation of the Competition Council of Romania on the abuse of dominant position opened in August 2012;
- TSR Airport refuses to recover 6.5 m euros from Wizz Air although it was required to do so following the opening of an investigation by the EC, based on national and ECJ jurisprudence;
- TSR Airport seeks enforcement to obtain payment by Carpatair of an alleged debt of 2.4 m euros, but:
- TSR Airport should pay 10.5 m euros in damages to Carpatair resulting from just one of the three claims raised by Carpatair. The case was irrevocably won by Carpatair in 2013 after the ruling of Pitesti Court of Appeal on the AIP 2010 scheme under which TSR Airport provided illegal, discriminatory and selective benefits to a carrier using airplanes heavier than 70t. The next hearing in damages case initiated by Carpatair will take place on 13.02.2014 at the Bucharest Tribunal, Case No.40177/3/2013;
- Swiss shareholders injected €15 m fresh capital in the period 2009-2013 and have now decided to stop pumping money into a market where competition is heavily distorted.
Review of the extra judiciary - voluntary restructuring 2012 to 2013
- Closure of the TSR hub starting in May-June 2013, reducing from 380 weekly flights to only four a week in TSR airport by Oct 2013;
- Fleet restructuring: the return of all turboprop and leased aircraft; the fleet is composed now of 1 Boeing 737 and 3 Fokker 100 jet aircraft, all owned by Carpatair;
Judicial Reorganisation Damage Repair - the Plan for 2014-2016 Business model:
- Only and exclusively owned jet aircraft
- Seasonal scheduled flights during Winter Holidays, Easter, Summer holidays;
- Focusing more on charter flights and wet leasing aircraft to the third parties; The Reorganization Plan will aim inter alia to recover damages from TSR Airport in amount of over 10 m euros in 2014-15 with other 20 m euros in a longer run. The recovery of damages shall be an important contribution of funds to repay creditors allowing the full repayment of the debts.