Airlines collide over new aviation rules
Critics fear return of suspended regulations that would stifle competition, benefit only Ukraine International Airlines
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.