What will happen to Air Serbia from next month is a question of about 56.5 million dollars.
Namely, in September, a loan of 56.5 million dollars, due to the interest that Air Serbia withdrew from Etihad’s company EA partners in 2015, is due for payment, and which this company (as well as the entire aviation industry) was severely affected by the corona virus pandemic.
To make matters even more difficult, next June another 65 million dollars of the second loan taken out in 2016 will be due.
As we recently learned, the management of Air Serbia asked the creditors, who are also the owners of 49 percent of Air Serbia, to write off 82 percent of these 120 million dollars due to the effects of the coronavirus pandemic.
We also learned that the creditor / co-owner of the company rejected the request and demanded payment of the debt in full and on time.
Formally, if the situation remains like this, it would mean the bankruptcy of Air Serbia.
However, no one believes in such a scenario, so various possibilities are mentioned.
One is that creditors would agree to delay loan repayment if the state accepts to be the guarantor of the loan.
This would formally mean an increase in public debt because state guarantees count as indirect public debt, but according to experts, the state would probably have to actually repay it because the aviation industry will not soon step on the green branch.
Of course, there is an option for the state to take over the debt and pay it and ask for an increase in the ownership share in the airline, and in the end some believe that it is justified not to pay the debt in this situation and that they might have a good chance at arbitration.
When an agreement was reached in 2013 on a joint company of the Republic of Serbia and the Etihad from the UAE, the Arab company acted as a knight on a white horse, in incredible expansion, with rich sheiks, as well as great friends of the then first deputy prime minister, behind him.
Today, Etihad is a company with a loss of five billion dollars and which withdrew from all the strategic partnerships it had, including Al Italia and Air Berlin.
And almost everywhere it left behind debts and bankruptcy.
According to Goran Radosavljevic, a professor at FEFA, Etihad remained only in Air Serbia because the company was profitable, if we do not refuse subsidies and because it did not cost them anything.
“Now that there is no such thing, the question of their stay arises. They probably don’t even care about the company, because if they did, they would probably create a program to help the company by now. It seems to me that this is a game where one of the owners wants to go out, and the state wants to buy it. I think that would be bad, because Air Serbia still raised the level of traffic and the number of passengers. Etihad still brought something to Air Serbia,” Radosavljevic estimates, adding that it is quite certain that the company cannot repay the debt on its own.
As for the fact that the management appointed by Etihad took such a rather expensive loan, since the interest rate in dollars is 6.96 percent per year and which is still increasing quarterly, Radosavljevic says that the Republic of Serbia is the majority shareholder, that it agreed to that loan and that no argument would pass that arbitration. By the way, Air Serbia also paid a considerable commission for processing that loan, a total of 7.8 million dollars to 120 million dollars of loans, which gives an effective interest rate of over 7.5 percent per year.
Radosavljevic also points out that he is not surprised that Air Serbia asked for the write-off of such a large amount of credit, because what the situation would be, it would not have gotten out of it even if it had received a write-off of 100 percent.
“The request is not a surprise because it is about a co-owner. Maybe a moratorium could have been demanded instead of a write-off. It should be clear that this was caused by objective circumstances due to which the company cannot repay the loan. I am afraid that taxpayers will have to pay again. The longer it is delayed, the harder it will be. I hope it will be delayed because the state has a strategy, and not because it is being pushed under the rug,” he said, adding that it is unlikely that the state will pass without helping Air Serbia with 100 million euros while resolving the loan issue.
“It is not surprising when you see what other countries are doing and how much money they are giving to their airlines. When everything is underlined, Air Serbia will not pay, either the state or another owner will have to, when it is not really interested. When they left a debt of one billion euros in Alitalia, these 100 million are nothing for them. It is for us. And that is why if the state takes over the repayment, then it must squeeze them out of ownership,” he estimates.
The dilemma facing civil servants who have to make a decision on Air Serbia is not at all easy.
Economist Danilo Sukovic reduces it to either “letting the company go through the water or putting his hand deep in his pocket.” It can’t be otherwise.
“Only those in power will not pay, but most of the poor. Maybe a foreign partner would accept to forgive a part of the debt if the calculation showed that he would later earn significantly more than Air Serbia’s business, but that is unlikely, because in this crisis, who knows when air traffic will return to normal,” he said.
For Branko Pavlovic’s lawyer, the key question is which court is competent in the case of arbitration.
“The fact that they will not accept the request does not mean that they have to be paid. If it comes to the corona and you ask them for a reprogram and they say I don’t care, I think they would have a good chance before our arbitration. If it is an international issue, then the possibilities should be studied well,” Pavlovic estimates.
In the framework agreement on the establishment of a joint company, the International Court of Arbitration in London was determined as the competent court, but Pavlovic points out that this is not certain since the entire agreement with all annexes is not known where it can be changed. He points out that “the state should now show its teeth”, Danas reports.
