Air Serbia cannot repay the debt

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The information that Air Serbia informed its creditor from the “family” Etihad Airways that due to the pandemic it may not be able to fulfill the obligations regarding the loans it took out in 2015 and 2016, reminded us that the national airline looks better in “cooperation” with the budget of Serbia than proving on the free market.
Air Serbia has informed Etihad Airways Partners I BV, the ‘special legal entity’ of Etihad Airways established in September 2015, that it will potentially not be able to meet its obligations as a debtor due to the financial consequences of the coronavirus pandemic, and that it will a mutually acceptable solution would be reached,” the portal exyuaviation.com announced.
It is, by the way, an extremely unfavorable loan that Air Serbia concluded in September 2015 with the fund EA (“Etihad Airways”) Partners I BV, in the amount of 56.5 million dollars, after deducting transaction costs of 6, 55 percent. The interest rate is almost seven percent (6.96), and the loan matures in full in September this year – 2020. Another loan, worth 63 million dollars, is due next year. For those two loans, regardless of the extremely high interest rates, as much as 7.83 million dollars were collected in the name of transaction costs.
We know about those two loans, the data on that borrowing of Air Serbia can be found in the company’s business reports in the database of the Business Registers Agency.
It was far more difficult to read the original agreement between the Serbian government, Etihad Airways and Air Serbia because it was hidden from the public until BIRN released excerpts from the draft agreement in March 2014.
Then it turned out, as BIRN wrote, that in 2013 alone, according to data from an agreement that was never officially announced, Serbia was obliged to pay over 90 million dollars, while the partner from the United Arab Emirates was 49 percent of the ownership share, paid 40 million dollars in loan. The state also took on “old debts of JAT”, ie liabilities that were estimated at over 230 million dollars.
Although, according to the provisions of the Strategic Partnership Agreement between the Republic of Serbia and Etihad Airways, the state should have stopped non-refundable payments to the national airline in 2016, this did not happen.
Justifying payments from the budget to the account of Air Serbia in 2017 and 2018, the total value of about 41.6 million euros (slightly less than 21 million euros in both years), Minister of Finance Sinisa Mali and Prime Minister Ana Brnabic stated that it is about payments on behalf of the old debt of Jat Airways.
What is interesting is that these payments are recorded as income, and when they are deducted from the income from regular operations, it follows that Air Serbia has been operating at a heavy loss since its establishment.
According to the data from the financial reports of Air Serbia in the period from 2014 to 2018, which were published on the website of the Business Registers Agency, Air Serbia received a total of about 200 million euros from the state.
Etihad did not invest in the joint company Air Serbia in the same period.
But, let’s go back to the present, when the pandemic “hit” the finances of all airlines in the world, including Air Serbia.
Only during the state of emergency, Air Serbia suffered losses of 30 to 40 million euros, judging by the statements of the line minister Zorana Mihajlovic.
She also confirmed that various types of assistance for the national airline are being considered, including, as she said, the increase of the state’s ownership share, as one of the types of assistance for overcoming losses incurred during the validity of the domestic regulation banning air transportation caused the appearance of coronavirus in the world aviation industry.
On that occasion, economist Mihailo Gajic told Nova.rs that he does not believe that the increase in the share in Air Serbia is being discussed because the company needs help due to global developments in the aviation industry, but because the loans it took from Etihad.
On the other hand, analyst specializing in the aviation industry, Alen Scuric, told us that he is ready to bet that Etihad Airways will not give a single euro to cover the losses of our national airline, Nova reports.