Business news from Ukraine

The second part of an exclusive interview of CEO of Ukraine International Airlines (UIA) Yevhen Dykhne for the Interfax-Ukraine news agency
Text: Dar Hryschenko, Dmytro Koshovy
– How is the current situation developing as for your dismissal? Does this affect the work, production processes?
– I don’t have time to pay attention to this right now. My lawyers in court are dealing with my failed dismissal, so today I am more concerned about the issues related to the situation in which the company is. And the situation is quite difficult, because we are now at the lowest point of the winter season. The emergence of a new Omicron virus strain complicated everything, as it brought additional restrictions on airlines. Just like last year, we need little help from outside in order to maintain our turnover, to pay wages on time, go through the winter period and realize plans for the next summer: bright, grandiose and important for the company.
Unfortunately, the help that we asked the shareholders was not provided to us. The management of the company has prepared a profitable deal, which for three weeks the supervisory board has been leading in a circle, it comes back for revision, we write comments and remarks to it. And, unfortunately, our people have been living in a situation with wage arrears for a month now. I hope that the shareholders and the supervisory board will nevertheless make the right decision, and the deal will be approved for us.
So that we understand the situation in the same way, it is within the powers of the president of the company to conclude contracts of up to $ 500,000. If we talk about the company’s pre-crisis turnover of $ 1 billion, then these are very insignificant powers.
And as far as the question of my dismissal hinders me or not … As before, I did my job professionally and honestly, and now I do it as well. It seems to me that the personal of the supervisory board chairman periodically dominates over the professional. But this does not harm me personally, but the UIA company, which is his company as well.
– Earlier, the chairman of the supervisory board of UIA, Aron Mayberg, said that you “did not cope with the change in the operating model of the company.” At the same time, according to you, the company ends the year with a profit. How do you see the current situation for yourself?
– I heard that it was on this principle that the decision was made to dismiss me in November 2021. But what is interesting, today I’ve specially raised a public release about how the tasks for the management were defined by UIA with my arrival. It is written here: “The key task of UIA under the new president is to return to the zone of profitability with a sustainable balanced development of the network business model.” And if we talk about the fact that our first conflict arose back in March 2020, that is, literally a month after the Iranian tragedy, at the time when all UIA planes were standing idle at Boryspil airport due to the pandemic, then I cannot understand what shortcomings of the company management could be discussed in March 2020? I think it’s hard to come up with a business case here.
In November 2021, I was invited to a meeting with Mayberg and asked to write a resignation letter in connection with some kind of “quota principle” that exists between the shareholders.
But I do not live “by one’s own rules,” I do not know anything about “quota principles,” which are not available to me as a company leader. I use the charter of the company, I use my contract, and there is nothing written about it. Naturally, I do not agree with the fact that a manager who was invited to the company at a difficult moment – at the end of 2019 – to perform tasks that were clearly voiced, would be fired in such a mysterious and strange way. I can’t take it that way. It is, after all, a large European company, of which Austrian Airlines are the progenitors. There must be some kind of European order!
After more than two years of the most difficult work in the company, the management headed by me has something to report to the shareholders. A huge amount of work has been done. We are proud of how we went through this difficult period for the company, how we prepared for future competition, how we changed life within the company.
And I want a normal civilized approach in this matter. Please give me the opportunity to report back, to transfer the cases to the future president, because there are important issues that we talked about. This is preparation for the company’s future hub in Boryspil, and all the contract negotiations, and, in the end, the issue of restructuring, which cannot be just taken and thrown away. It will be a completely different dialogue. Perhaps gratitude from the shareholders will be enough for me in this case.
– You say that you met with Aron Mayberg. And with Ihor Kolomoisky, who is also often mentioned in this conflict?
– I believe that public opinion exaggerates connection between UIA and Kolomoisky. But we understand why UIA is associated with him so well in the media … Kolomoisky is a very sonorous surname that is sold well in the media. Therefore, UIA of Kolomoisky is more interesting than UIA of Mayberg. But this demonized surname of Kolomoisky is also unfairly used in matters of mistakes. You know, there is such a phrase “Every mistake has its last name, first name and patronymic name.” In my opinion, there are mistakes of untimely decision-making to stop the execution of unprofitable Mayberg routes. There are processes related to UIA’s litigation of its debts named after Bondar, etc. But in public opinion, all this merges towards (laughs) such a “lightning rod” named after Kolomoisky, who, at the same time, has the most distant relation to the company from the point of view of its management, decision-making, etc.
– In cases where there are conflicts between owners, one of the tools is bankruptcy and transition to external management. Is this option generally applicable in the case of UIA?
– Today I do not even see prerequisites for such a development of events. I would like to draw your attention to the fact that for me there are no individual shareholders. I am the public person of the company and only use legal information. And in the legal field there are only two shareholder companies: one is Cypriot, the other is Ukrainian.
In June 2022, the deadline will come when the final beneficiaries of the companies should be presented, I will receive this information officially, and then I will be able to comment in some way.
– I would like to clarify how you see your future plans for working with UIA? Thinking about leaving in 2022 or not?
– My contract terminates in September 2022. And for the duration of my work in the company, according to the contract, I have a lot of planned tasks. The first task is approved by the supervisory board: reaching the restoration of the company’s hub model in the summer navigation of 2022. We expect the aviation market to improve and are preparing to restore our network model. At the same time, we want to adopt a new operating model of a three-wave hub, we want to return wide-body aircraft to the airline’s fleet, to restore long-haul flights … All these plans have been approved by the supervisory board, so the company, led by me, is preparing to implement them.
The second important point, which is a priority for me, is the issue of restructuring the airline’s debts to the state-owned enterprises Boryspil airport and UkSATSE. Why is it important? Because we have grandiose joint plans with Boryspil airport for the development of the hub. I know very well how controversial issues interfere with work in the joint organization of processes.
At the end of 2014-the beginning of 2015, I was already dealing with the issue of settling the debts of UIA, but as the director of Boryspil airport. And that was a very important moment. Then UIA said: “We are ready to develop at Boryspil airport in such a way with such steps, but we have debts that are in courts, etc.” And then we came to the conclusion that there are indisputable debts of UIA (which were restructured with subsequent payments), and there are disputed ones that remained in courts. Such a solution to the issue of financial relations between the two companies made it possible for both UIA and the airport to develop.
Now we are again on the verge of a new beginning at Boryspil airport after a complete shutdown, after mostly point-to-point flights, flights as more of a charter program than a regular one. For example, in 2021 we performed only 25% of scheduled flights compared to 2019, while the number of charter flights in the company was about 60%. An unprecedented share of charter flights for UIA! In the usual hub model of the company, charter flights account for 10-12% of traffic volumes. Therefore, debt restructuring is one of my priorities. We are in the negotiation process with the government on this issue, and I see that there is political will to resolve this issue in a mutually beneficial way.
If we talk about restructuring, the first step is the mandatory recognition of debts. Restructuring also requires a certain audit of the company’s activities by the state, when you can say for what reasons these debts arose in order to remove the issue of mistrust. Another important factor is proof of solvency. And here our indicators for 2021, when we reached a sufficient operating profit and did not add new debts to the old ones, either to Boryspil airport or to UkSATSE, are also important.
– That is, there was no increase in debts?
– There was no increase in debts either in 2020 or 2021, because we initially, from the first day of my arrival at the company, began to work on the principle of prepayment. We paid money in advance for a week, worked it out – we pay the next. And these relations have been going on for more than two years. But the problems of debts of the previous periods still need to be solved.
What is also important in the issue of restructuring is that quite a long way has already been passed, and in this situation, in no case should the negotiating person be changed. As they say: one case – one voice. This is the principle that is indispensable in any negotiations so as not to complicate them. Moreover, we do not have much time to go through this path. After all, every day, until we reach an agreement, penalties and fines continue to accrue on all issues that are in courts. It is very expensive for the company to live in debt. They need to be made clear as soon as possible.
– And at what stage is the restructuring now?
– The week before last there was another meeting with Minister of Infrastructure Oleksandr Kubrakov, last week I talked with Deputy Minister Vasyl Shkurakov. Now the question of the state’s consolidated position on the powers of the heads of these companies – Boryspil airport and UkSATSE – is moving. They should receive additional powers, as an act of good will on the part of the state, to meet the needs of airlines in stopping fines, penalties and in debt restructuring. Because today they do not have such a right as the heads of state-owned enterprises. We also need political will, which should be formalized into a government decision.
Today, we have about UAH 1.5 billion in courts with UkSATSE and about UAH 800 million with Boryspil airport. Of course, these are very significant sums, and we want to resolve this issue as soon as possible so that we can build joint development plans with our partners.
– Taking into account the forecasts for the recovery of the aviation industry, what would be a comfortable period for you so that the company could both develop and repay debts?
– We are talking with the companies and with the government about a five- or seven-year repayment schedule. Because we cannot talk about another restructuring, we cannot deceive anyone. We are talking about the situation that we can serve. Our audit, which we offer as an attachment to this restructuring, shows our payment options.
Unfortunately, the way it used to be, when it was possible to predict the growth of passenger traffic for 10 years, will no longer be the case. Today we live in completely new conditions. But after two years of being in the pandemic, we, nevertheless, can appreciate that humanity is finding new ways, and each new strain no longer causes the panic and those restrictions that were originally.
Yes, it has become much more difficult for a passenger to travel, the mobility of people around the world has decreased. But in general, we will already begin to move up.
– Not so long ago, we received a letter from your employees about wage arrears at UIA. How critical is this situation? We know that even in European countries, collectives in such situations often resort to strikes or something like that …
– I generally learned about this letter from the media. Apparently, not only I understand what is actually happening in the company, and the role of the supervisory board chairman in these processes. It is important to note that our trade unions have a life of their own. This is normal, because we have a certain interaction, when we, as parties to the negotiation process, determine the principles of interaction between the trade union and the company’s administration. We have an understanding of the interests of the two sides, we have a collective agreement that we comply with.
And I want to say that it was the trade unions, especially the pilots’ union, that played an important role in the passage of the crisis by UIA. They made concessions in terms of the pilot pay model. For the period of the pandemic, we have used a model where, in the absence of flight time, we do not pay the pilots an hourly rate. And this turned out to be a great advantage for the airline and an opportunity to reduce costs during those periods when almost all aviation was stopped. Thus, we have relief in terms of payments to pilots, and this very seriously saves the company in going through the crisis.
– Previously, UIA announced the resumption in 2022 of long-haul flights to New York, Toronto and Delhi. Will there be other long-haul flights?
– There will certainly be a number of charter programs on long-haul flights, because life in the pandemic showed that when the nearest neighbors are closed, long-haul flights open up. This is attractive to passengers. We are not naming directions now, because this is a matter for the summer-autumn of 2022. It is hard to say which of the planned countries will be open, which will be attractive. But there will be a number of long-haul charters on board Boeing 777 aircraft. This could be Mexico, Thailand, and other destinations. We will see what directions the tourism market will be ready for, and we will support it.
– What aircraft do you want to attract for long-haul flights?
– We budgeted for the return of our three Boeing 777s. We flew these aircraft very comfortably and plan to return them to the fleet.
– And how many such long-haul aircraft are in Ukraine now?
– Long-haul aircraft for charter flights today is mainly used by Azur. It’s a Boeing 767, but it’s not a Triple Seven. In fact, we were and will be the only operators of the Triple Seven model in Ukraine, and then we’ll see.
We are planning to return long-haul flights to the program sometime in June and, accordingly, we will operate aircraft and use them for charter flights as well. But in any case, we plan to focus more on our regular program – these are New York, Toronto, Delhi … And the charter program should balance the utilization of the fleet so that the aircraft is more in the air. We will respond to the demands of the tourism market. Travel agencies with which we have been cooperating for many years prepare the program, determine the market capacity and offer destinations. We agree on certain financial conditions with them and begin to transport passengers for them. They are the operators of these transportations, and we are the carriers. Therefore, now it is very difficult to talk about how the tourism market will look like at the end of 2022. And now giving some signals to our readers is a thankless task.
– And what passenger traffic do you expect for 2022 and, accordingly, in what ratio of charter and regular flights?
– In 2022, we expect a decrease in the share of charter passenger traffic in the total UIA traffic to 24%, while in 2021 this share was about 50%. The total number of passengers scheduled for transportation in 2022 is about 4.3 million, which is 36% more than in 2021. We do not count on a rapid extension of the company and the volume of traffic, because the situation is such that we do not expect any special delights in 2022. But, nevertheless, today the company is in a very balanced and economically correct state. We received very important conclusions from our partners. For example, Lufthansa Consulting completed their audit in October, and we were highly rated by them in terms of the company’s cost per “seat/kilometer.” According to their data, UIA is practically lower than all conventional airlines in terms of its cost per “seat/km.” That is, closer to Ryanair, Pegasus Airlines and Wizz Air. We, as a conventional airline with business class, with systems of sales through agents, etc., nevertheless, are very close to low cost airlines in a competitive environment. And this is what inspires confidence in our perspective in 2022-2023. So we also see 2022 as a positive year.
– Do you plan to restore domestic flights?
– From the history of the UIA network model, 70-80% of transit passengers were transported on domestic flights. That is, we brought passengers from the regions to Boryspil airport, and they then flew with us to other countries.
Today, the offer of flights from Boryspil for UIA is small, and in 2022 we are not restoring flights in the volume to be able to fly to the regions on board the same Boeing 737 with 186 seats or Embraer with 106 seats.
Today we connect a lot of flights and see that the level of transit passengers, for example, from Tbilisi or Munich, is about 30-33%. On domestic flights the figure is approximately the same – up to 49%. Today we are pleased with our collaboration with Windrose and have agreed on a joint schedule for 2022. And, of course, we will operate a certain number of flights within the country on our own, but the majority will be operated by Windrose, because their fleet is smaller, which means they have more opportunities to fill aircraft to an economically advantageous level.
– That is, the hub model you are talking about will be developed, including in collaboration with other airlines?
– It will be in collaboration with Windrose on domestic flights.
– In general, how interested are you, as a company, in the state program for the restoration of regional airports?
– It’s a great program. We are happy to see how the state invests in airports. Over time, this will definitely give its result. This increases the mobility of the population in the regions, increases interest in air transport. Perhaps some charter flights will be launched from regional airports, perhaps we will start flying to those airports that we have not flown before. Or we will fly in better conditions: now, for example, Kherson airport is being reconstructed, and, finally, high-quality lighting and signaling equipment will appear there that will meet all safety requirements.
– I can’t help but ask in the same vein about the “presidential thousand.” UIA has announced it is ready to participate in this program. Are there already those who spent this money on air tickets?
– Yes, we have provided our passengers with the opportunity to use this money when paying for domestic flights. But it cannot be said that their share played any significant role for our cash flow. Since the launch of the e-Aid project, 1% of all tickets sold on UIA’s only own domestic flight – Kyiv-Odesa-Kyiv, have been bought at a special price.
– Earlier UIA had a conditional low cost model for a part of air tickets. Is this planned in the near future?
– We, as an airline, do not have the task of becoming a low cost airline. We plan to develop a hub model at Boryspil airport. We are working to ensure that all the issues related to cost reduction, which are so well and efficiently implemented in low cost companies, become elements of our operations as much as possible so as not to receive negativity from our passenger. Because there is a savings limit that we, as a classic company, cannot cross.
– Predictions that, due to the general focus on reducing emissions, the hub model in aviation will gradually become a thing of the past, don’t they scare you?
– In any case, no matter how technology develops, demand determines supply. Today, the demand for a comfortable trip is quite high. There is a demand for a cheap trip, but today there is a demand for comfort. And UIA, I believe, has found its place at the junction of these two requests. We try to make a comfortable trip at a low price. And today this is our product niche in the market. And there is a demand for this particular product.
– Boryspil airport says a lot about the fact that freight traffic in terms of amount has greatly increased over these two years, many airlines have switched to cargo transportation. As far as I know, you had one cargo plane in your fleet… Have you thought about taking advantage of the current situation?
– This is not our core business. Taking into account the fact that passenger aircraft take a certain part of the cargo on each regular flight with passengers (depending on the model), this is the type of transportation we have always dealt with and plan to do. We are definitely not going to fly with empty trunks. And to say that today we have an interest in investing in the cargo fleet … we do not evaluate the prospect of pure cargo transportation as part of our future business.
– From the point of view of the direct impact on the market of the creation of an airline by the state: whether this will be a factor that will postpone your return to a better financial result for some time?
– It is difficult for me to assess potential competition with a company that does not yet exist. As I said, we will launch our routes in the summer of 2022, which is almost tomorrow. Therefore, I don’t know how the fate of the new airline will develop … But we definitely consider the fact that the state pays so much attention to aviation today as a positive.
Perhaps, in the course of activities of the state-owned airline, the state will become more familiar with the conditions in which Ukrainian airlines operate. Because when this company, for example, starts telling the government that “sorry, but we are discriminated against on the principle of paying excise tax on fuel. Nobody pays, but we pay! And we must compete!” The state will have to pay attention to this as a shareholder. You know, self comes first, so the market will have more access to the solutions that aviation needs.
And competition … we will never get away from it. Whether it will be a state-owned company, or a private company, or a foreign company, or another Ukrainian company … That’s it, we live in the world of a very tough competition. Only those who are ready for this competition better than others will be successful. And we are very well prepared for this competition.
– But won’t you challenge this state aid in the Antimonopoly Committee?
– In general, I did not even look at this issue through the prism of some possible disputes. I think that we have enough useless disputes with Boryspil airport and UkSATSE, which I dream of ending as soon as possible. So who needs controversy? We need peace, harmony and understanding for further business.
– What is the financial result for 2021? What are your profit plans for 2022?
– We expect a positive financial result in 2021. We had a very good result for ten months. This was an operating result of about $15 million. We see that we will also end the year with positive numbers, but what kind? There will be a financial report, and then we will be able to talk about it.
– What about plans for 2022?
– I will not announce plans for 2022 in terms of finance. Our budget is not yet public in this regard. As a rule, we announce only directions, the number of passengers…
– Over the past few years, UIA has had a number of conflicts due to low-quality services from Aerohandling. Have you thought about changing the service company?
– My position in this situation is as follows: I am not completely satisfied with the handling services for UIA. There are quite lot moments when UIA suffers from low-quality handling services. As a result, our reputation suffers. After all, passengers believe that this is our responsibility. And they think correctly, if we talk about the consumer of services. Therefore, I definitely plan to change the position of UIA towards handling. Whether it will be a change in the contract with Aerohandling or it will be some other handling, I can’t say right now. But I am for UIA to be a fair customer of handling services and receive a quality service for a fair price for its passengers. And in this process, every day we are moving towards the intended goal.
Interfax.com.ua