Ukrainian International Airlines with President Poroshenko and Zelensky

One of the jokes before the first tour of presidential elections in Ukraine was: “Vote for Zelensky, and you will stay with Ukrainian International Airlines (UIA)”.

So where will UIA fly when either Mr. Poroshenko or Mr. Zelensky becomes president?

Nowadays, the largest airline of Ukraine is experiencing hard times. In 2018 the losses of the company have exceeded 100$ million. It is highly difficult for the UAI to compete with low-cost airlines. Therefore, the airline is addressing the state in order to get financial aid. readers think that the destiny of the UIA will mostly depend on the actions, and particularly, name of the newly elected president.

The UIA with President Poroshenko

On the 23rd of March 2018 was a significant date in the aviation life of Ukraine. On this date one of the most famous low-cost airlines entered Ukrainian market. The Ministry of Infrastructure of Ukraine has elaborated a clever system of discounts, due to which Ryanair was able to be serviced at the Boryspil Airport almost free of charge.

However, the UIA has not also been forgotten. The main carrier for the airport bargained for similar things: rates are tied to the volumes of passengers carried.  According to the news on the aviation market the new discount system of Boryspil suggests that two carriers, the UIA and Ryanair, which together carry more than 50% of passengers of Boryspil Airport, will pay only 20% of the passenger fee and 20% of the take-off and landing cost until 2022.

By the end of presidency of Mr. Poroshenko, it has become a lot easier to fly to Europe. The borders are opened and air tickets with the price starting form 10 EUR isn’t a dream, but reality. Following Ryanair, Ukrainian low-cost carrier SkyUp has entered the market and Hungarian WizzAir has significantly expanded the network of flights from Ukraine.

Nowadays the UIA no longer compares low-cost airlines with “commuter trains” and publicly welcomes growing competition.

However, it is pretty difficult to believe in sincerity of top-management. Expansion of low-cost airlines forced the market leader to reduce tariffs, introduce paid services on board and reduce costs to the maximum.

The end of the presidential term Poroshenko UIA meets with a steady growth in passenger traffic, a huge route network, built business structure and fleet, ready to provide it.

However, there is another side of the coin – a loss of UAH 2.7 billion against UAH 304.51 million in 2017 and an increase in the debt portfolio.

Therefore, the management of the UAI has a difficult task – to stay afloat in a strengthened competitive field. There is an alternative – to leave the market like in 2013 another bankrupt company “Aerosvit” did, where Mr. Ihor Kolomoisky also was a shareholder.

Considering this issue, the state must also make a difficult decision – to leave things as they are or to save the country’s main airline. The first option is dangerous because of bankruptcy of the system carrier and the collapse of the aviation market, the second – billions of dollars in costs for its salvation.

Where did the losses come from?

Mr. Parashchii, the Head of Analytical Department of Concorde Capital, explained that losses of the company are connected with the increase of creditor indebtedness in the amount of UAH 1.4 billion.

Mr. Yurii Myroshnykov, the president of the UIA, clarified that the losses depend on several reasons, including fast increase in fuel cost, fleet renewal costs and high navigation rates at Ukrainian airports. Moreover, the company loses money on the overflight of the closed airspace of the Russian Federation, the Crimea and the ATO zone when performing flights to the east.

In addition, the six-month delay in delivering three Boeing 777 cost the company $ 20 million.

How does the government influence the UIA?

Mr. Andriy Guck has explained that aviation needs from government only a few things. The first one is State Aviation Authority, the issue of access to lines, the rights of foreign airlines to overnight parking, licensing and certification, airline checks. The second one is taxes, including VAT on fuel, catering taxes, aviation fee, etc.

In addition, it is highly important for the airlines to have influence on Ukrainian State Air Traffic Services Enterprise, which is responsible for air navigation and Antimonopoly Committee of Ukraine.

Control over state airports allows to create unequal conditions for different participants.

Significant for aviation issues are lobbied through the Verkhovna Rada and the Ministry of Infrastructure of Ukraine.

What waits for the UIA with President Zelensky?

An expert in aviation Kyrylo Novikov is sure that neither Mr. Kolomoisky, nor the future president will have a direct influence on the company. There is a Supervisory Board and the Board of Directors, which develop business. Another question is whether the losses of the UIA will decrease. He says it is possible as the rates of aviation fees can be reviewed.

According to Mr. Guck if President Zelensky and his team chooses a loyalty policy for the national carrier, it can be expected that relations with foreign airlines will be based on the priorities of the UIA. The lawyer says that it means that the UIA will be able to build and develop its network relying only on its interests as well as use administrative resources against competitors, strengthening its positions. He suggests that the UIA might agree with Ukrainian State Air Traffic Services Enterprise on lower prices and settle all the existing conflicts.

One more possible step, he thinks, is beginning shifting restrictions in the airspace between the Russian Federation and Ukraine, in which the UIA and Ukrainian State Air Traffic Services Enterprise are interested.

Stop low-cost?

Even when the State Aviation Authority was led by a former manager of the UIA the position that the situation is not bad enough to stop flying to Ukraine prevailed, – says Mr. Guck. Therefore, there is no reason to expect a catastrophe in the market from strengthening of the UIA, as many of the processes that have been already started by the ministers of infrastructure and aviation authorities are mainly irreversible.

Mr. Novikov agrees with Mr. Guck since the arrival of new famous airlines and, in particular, well-known low-cost airlines is beneficial to any president as this is an opportunity to improve his own rating, declaring aviation victories.

Once the UIA will not take off. Is it possible?

No one is interested in the bankruptcy of such a huge airline. National carrier is likely to be saved. In case of the UIA`s bankruptcy, at least $150-$175 million is needed to invest in a new carrier.

The airline does not pay Ukrainian State Air Traffic Services Enterprise the price that it expects, does not pay the aviation fee, considering it illegal. Under President Poroshenko, the state is likely to sue on all fronts, including criminal proceedings.

Such actions may encourage the owners of the airline to withdraw assets, create a new carrier or leave aviation. In such a case the consequences can be disappointing, because Ukraine will remain without a strong network company, there will be no one to quickly replace it. The scenario of AeroSvit, when most of the rights were transferred to the UIA, will not be easy to repeat as other airlines are not able to quickly pick up the UIA network.

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