Air­lines col­lide over new avi­a­tion rules

Crit­ics fear re­turn of suspended reg­u­la­tions that would sti­fle com­pe­ti­tion, ben­e­fit only Ukraine In­ter­na­tional Air­lines

Kyiv Post Legal Quarterly - - Contents - By Anna Ro­man­dash arnika4@gmail.com

Although new avi­a­tion rules that would skew the play­ing field in fa­vor of Ukrainian-owned air­lines have been suspended for now, for­eign car­ri­ers are wor­ried that the idea might get res­ur­rected.

The new rules, in­tro­duced by the Avi­a­tion Ad­min­is­tra­tion on Nov. 13 but suspended by the Jus­tice Min­istry on Nov. 26 af­ter a storm of crit­i­cism, re­quire an air­line to fly a year’s worth of do­mes­tic flights and have a ma­jor­ity Ukrainian share­holder in or­der to ap­ply for an in­ter­na­tional route to and from Ukraine.

For­eign com­pa­nies have been scathing about the new reg­u­la­tions, ar­gu­ing that they

ef­fec­tively block them from the Ukrainian mar­ket in fa­vor of the coun­try’s largest air­line, Ukraine In­ter­na­tional Air­lines, which is be­lieved to be owned by bil­lion­aire Dnipro­pretro­vsk Gover­nor Igor Kolo­moisky, although Is­raeli cit­i­zen Aron May­berg is also iden­ti­fied as a co-owner and chair­man of the board of di­rec­tors.

Fledg­ling en­ter­prise At­las­jet Ukraine, owned by Turkey-based par­ent com­pany, says the rules are al­ready sti­fling busi­ness, with the com­pany un­sure whether it can pro­ceed with its plan to start op­er­a­tions in the coun­try.

"Ukraine In­ter­na­tional Air­lines are the only com­pany that will ben­e­fit from this," says An­driy Guk, a lawyer with Marchenko Danevych who rep­re­sents At­las­jet.

"The rules not only block com­pa­nies with for­eign own­er­ship, but also smaller com­pa­nies – routes will be al­lo­cated ac­cord­ing to a for­mula fa­vor­ing com­pa­nies with the largest num­ber of routes and the most fre­quent flights."

While the Avi­a­tion Ad­min­is­tra­tion ar­gues the changes are nec­es­sary ahead of a forth­com­ing Open Skies Agree­ment be­tween Ukraine and the Euro­pean Union, Guk is quick to point out the flaws in the ad­min­is­tra­tion’s ar­gu­ment.

"We no­ticed sig­nif­i­cant dif­fer­ences be­tween the EU and Ukrainian ver­sions of the reg­u­la­tions," he said. "The EU rules state that a na­tional of the coun­try has to own the air­line, be that na­tional a legal en­tity or an in­di­vid­ual cit­i­zen. The Ukrainian ver­sion, on the other hand, omits the term ‘legal en­tity’ and uses only ‘cit­i­zen’."

The Amer­i­can Cham­ber of Com­merce in Ukraine also op­posed the changes, con­tend­ing that it is un­fair to sud­denly im­ple­ment new rules when Ukraine had been ex­pected to sign the Open Skies Agree­ment lib­er­al­iz­ing, rather than re­strict­ing, the air­line in­dus­try.

Smaller Ukrainian com­pa­nies have also voiced con­cerns that the re­quire­ment to fly do­mes­tic flights for one year be­fore gain­ing ac­cess to in­ter­na­tional ones will drive in­vestors from abroad away. With­out the lu­cra­tive in­ter­na­tional routes, in­vestors face at least a year of run­ning at a loss.

"The ma­jor­ity of Ukraini­ans can’t af­ford fly­ing within the coun­try, so do­mes­tic planes usu­ally go half empty," says UM Air pres­i­dent Ro­drigue Mer­hezh.

«The Avi­a­tion Ad­min­is­tra­tion should worry about safety rules, but leave the mar­ket to busi­ness,» says Mer­hezh. "Af­ter all, de­mand should de­ter­mine the routes we want to have."

Mean­while, Ukraine In­ter­na­tional Air­lines wel­comed the new reg­u­la­tions, with the com­pany’s ex­ec­u­tive vice pres­i­dent, Ser­hiy Fomenko, ap­plaud­ing the "trans­parency th­ese rules carry."

“Un­til now UIA had huge prob­lems get­ting per­mits and do­ing busi­ness in Ukraine,” he said.

No one is more familiar with th­ese prob­lems than the new head of the Avi­a­tion Ad­min­is­tra­tion Denys Antonyuk, who spent three years over­see­ing the devel­op­ment of Ukraine In­ter­na­tional Air­line’s route net­work and has staunchly de­fended the pro­posed new reg­u­la­tions.

“Air safety be­gins with fi­nan­cial safety and we can en­sure it only when we know the com­pany’s own­ers,” says Antonyuk. “Now the air­lines will come di­rectly to us and ex­plain who owns them.”

He is backed by Bo­ryspil Air­port’s man­age­ment, whose deputy gen­eral direc­tor, An­ton Bo­rysyuk, was once em­ployed by Ukraine In­ter­na­tional Air­lines as its vice pres­i­dent.

Crit­ics sug­gested to the Legal Quar­terly that the pair are work­ing in part­ner­ship for the ben­e­fit of its iron­i­cally anony­mous owner, al­leged by Swis­s­port se­nior vice pres­i­dent Mark Skin­ner to be Kolo­moisky.

“With­out new rules, we will have no legal ba­sis for giv­ing di­rec­tions, flights and per­mits to com­pa­nies,” ar­gues Antonyuk. “We can’t cancel them with­out cre­at­ing a huge legal vac­uum for sev­eral months.”

The As­so­ci­a­tion of Avi­a­tion En­trepreneurs has ap­pealed to the Cabi­net of Min­is­ters, Pres­i­dent Petro Poroshenko and the State Avi­a­tion Ad­min­is­tra­tion to cancel the rules. “Air­line busi­ness al­ready has com­pe­ti­tion rules that are determined by the coun­try’s laws,” said as­so­ci­a­tion's lawyer, Olek­sandr Ve­ly­chko. “With its new reg­u­la­tions, the Avi­a­tion Ad­min­is­tra­tion took on the role of the par­lia­ment.”

“Ukraine In­ter­na­tional Air­lines is the only com­pany that will ben­e­fit from this,” says lawyer An­driy Guk of Marchenko Danevych.

The open­ing of Ter­mi­nal D at Bo­ryspil In­ter­na­tional Air­port, Ukranie’s ma­jor avaition hub, on May 28, 2012. (Kostyan­tyn Ch­er­nichkin)

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