HELIOS SUCCESSOR "AJET" SUSPENDS OPERATIONS; CYPRIOT CRASH

UNCLAS NICOSIA 001953

SIPDIS

SENSITIVE

SIPDIS

E.O. 12958: N/A
TAGS: EAIR ECON CY
SUBJECT: HELIOS SUCCESSOR "AJET" SUSPENDS OPERATIONS; CYPRIOT CRASH
REPORT DUE IN DECEMBER

Ref: Nicosia 1755


1. (SBU) Summary: Over a year after one of its Boeing 737s crashed
into a Greek mountainside killing all 121 people on board, Ajet
(formerly Helios Airways) has suspended all operations citing
unsustainable financial losses. Ajet currently has no plans to
declare bankruptcy pending the outcome of its lawsuit against
Boeing, which it is publicly blaming for the August 2005 crash.
Average ticket prices in and out of Cyprus -- especially for the
Christmas period -- have increased significantly due to the demise
of Ajet, which at its peak carried as many as 10 percent of Cyprus's
2.5 million annual tourists, and was Cyprus's only low cost airline.



2. (SBU) Meanwhile, on November 13 the GoC officially bought
EuroCypria from Cyprus Airways as a way to inject cash into the
struggling national airline, pending an EU decision on whether the
GoC can guarantee a CYP 60 million restructuring loan. The Kallis
Commission set up by the GoC to assess responsibility for the August
Helios crash wraps up its public hearings December 1 and is expected
to issue its report in early December. This will supplement the
Greek investigatory report released in October (reftel) that found
human error as the primary cause of the accident, but included as
"latent causes" Helios' lack of a safety culture, systemic
weaknesses in the Cypriot Civil Aviation Department and Boeing's
"ineffective measures taken in response to previous depressurization
incidents." End Summary.

Helios/Ajet's Stormy End
--------------

3. (U) On October 30 Ajet (formerly Helios Airways) announced plans
to suspend all its operations within three months, citing continued
and unsustainable financial losses. The announcement signaled the
de facto end of Ajet, which for the last 15 months has hemorrhaged
money as it tried to rebuild its image and clientele following the
August 2005 crash of one of its Boeing 737s into a Greek
mountainside. The crash, which killed all 121 passengers on board,
has had a profound effect on the tight-knit Cypriot society, as
almost everyone knew at least one of the victims personally.
Relatives of the victims continue today to call for those
responsible to be brought to justice, and over the past year the
police have had to intervene twice to extract the Minister of
Communications and the former Helios General Manager from the
clutches of angry protesters.


4. (SBU) Prior to the decision to suspend its operations, Ajet
General Manager Brian Field, who joined the company ten days before
the accident, complained to us that the press and government
authorities continued to punish the airline unfairly for the crash
and refused to treat the struggling airline objectively. For
instance, the GoC's delay in giving approval to the renaming of the
airline and to sending an inspector to Seattle for the delivery of a
new Boeing 737-800 (leased through an Irish subsidiary of General
Electric) cost the airline several million dollars. As a result,
Field was planning to transform Ajet into a UK airline, subject to
UK oversight, a move he thought would help the image of the firm and
ensure better treatment.


5. (SBU) Compounding Ajet's woes was the European Commission's
decision to threaten to blacklist Ajet in an apparent response to
the continued negative press coverage hounding the airline. The
Commission's September Safety Committee, however, gave Ajet a clean
bill of health, but noted that it would continue to monitor Ajet
closely, a move the press termed as Ajet receiving a "yellow card."
The head of the Cypriot Civil Aviation Department called this
interpretation unfair, noting to us that under Field's leadership,
Ajet had transformed itself into a solid airline.



6. (SBU) Press reports suggest that Ajet's losses since the crash
were as high as CYP 24 million (USD 53 million) including the CYP 18
million (USD 40 million) that Ajet's parent company Libra Holidays
had written off in goodwill. According to Field, as part of its
very profitable deal to sell its previous charter airline, Excel
Airways, Libra Holidays had guaranteed several hundred thousand
seats from its holiday packages per year to Excel until 2008. Ajet
had only to survive until 2008 and could then expect to inherit
these guaranteed seats. One of Libra Holidays shareholders told us
that the company had considered disbanding Helios/Ajet immediately
after the accident but had been overruled by the main shareholder,
Andreas Drakos, who had still hoped to repeat with Ajet the success
the company had had with Excel.

Government Impounds Ajet's Leased Plane
--------------

7. (SBU) Ajet's last days did not go smoothly. Following Ajet's
October 30 announcement, the Ministry of Communications gave orders
to stop an Ajet flight to Gatwick over concerns that Ajet might try

to skip out of the over CYP 2 million owed to the GoC in back taxes
and landing, passenger and other airport fees. To ground the plane,
the Government used a truck to block it from taking off, risking a
possible accident on the tarmac and temporarily stranding over a
hundred tourists who were on board. Despite a court decision
allowing the plane to be returned to its owner, the Irish GE
subsidiary Celestia, the GoC refused to allow the plane to leave
until all taxes and fees were paid. Celestia's Cypriot lawyer told
us that under Cypriot law some airport fees are the joint
responsibility of both the airplane operator and owner, and thus
Celestia may be liable for some of this debt. The plane was to take
off for Ireland on November 22 after Celestia agreed to put up a
bank guarantee pending a court decision on the extent of Celestia's
financial responsibility. The final nail in the coffin for Ajet,
however, came on November 2, when the Civil Aviation Department
formally suspended Ajet's operating license on the grounds that
Ajet's financial difficulties could pose a safety risk.

Ajet Blaming Boeing for Crash
--------------

8. (SBU) Although it has suspended its operations and laid off most
of its staff, Ajet will remain alive as a legal entity pending the
outcome of all the crash related investigations and law suits. On
October 22, the Greek investigatory commission issued the Tsolakis
report (reftel) which found human error to be the primary cause of
the accident but found Helios (Ajet) to be a poorly organized and
managed organization lacking an established "safety culture." It
also found as other latent causes: systemic weaknesses in the
Cypriot Civil Aviation Department and Boeing's "ineffective measures
taken in response to previous depressurization incidents."
Nevertheless, Ajet continues to publicly blame Boeing for the crash
and has filed suit against Boeing in a Greek court seeking up to CYP
30 million (USD 66 million) in damages. Many of the victims'
relatives are also suing Boeing in the U.S. According to the press,
Ajet continues to challenge the Tsolakis report's finding of human
error, blaming the crash on manufacturing faults in the wiring of
the plane, which it alleges led to the plane's depressurization and
hence the accident.

Kallis Commission Report on Crash Due in December
-------------- --------------

9. (SBU) Meanwhile, the Committee in Cyprus, chaired by former
Supreme Court Judge Panayiotis Kallis, continues to investigate the
accident in parallel with criminal investigations that have been
launched in both Cyprus and Greece. Elias Nikolaides, who served on
the Greek investigatory committee and has been hired to assist
Kallis, told us that the Kallis Commission would hold its last
public hearing on November 20 and should complete and hand over its
report to the Council of Ministers in early December. (Note: The
last hearing was subsequently postponed until December 1, however,
to accommodate the schedule of Libra Holidays President Andreas
Drakos. End note.) According to Nikolaides, the report will be
much shorter than the Tsolakis report and would focus on assigning
responsibility for the crash including with the Government, Minister
of Communications and Civil Aviation Department if necessary. He
would not, however, speculate on what the contents of the report
might be. It would be up to the Council of Ministers to decide what
to do with the report. Several observers have suggested that there
will be no one the GoC will be able to hold as criminally liable for
the accident since the Tsolakis report found the crash to be caused
by human error and the pilots both died in the crash. Nevertheless,
there is significant public pressure on the government to be seen as
holding someone accountable, and the Cypriot police are
independently investigating the accident. We are not aware of
anyone connected with Boeing having been called before the
Commission.

Civil Aviation Reform
--------------

10. (SBU) In addition to Helios/Ajet, the Cypriot Civil Aviation
Department also took a beating in the Tsolakis report. Civil
Aviation Department Director Leonidas Leonidou admitted to us that
his Department had had serious shortcomings that could have led to a
serious accident, although he insisted that the Department was not
responsible for the Helios crash. Leonidou told us that following
an assessment by the European Aviation Safety Agency (EASA),EASA
has sent him a list of over 150 recommendations on how to improve
the Department. To help address these concerns and professionalize
the agency, the GoC had hired U.S. aviation consultants SH&E, hired
and trained several more staff and reduced its dependency on help
from the UK Civil Aviation Authority. According to Leonidou, the
GoC had already satisfied over 90 percent of EASA's recommendations.
Those that remained did not directly concern safety such as the
need to have a legal office within the Civil Aviation Department.
Leonidou expected EASA to return in January. He complained that
the Department's position as an agency under the Ministry of
Communications left the Department open to political pressure and

severely constrained his ability to fire and hire staff. Leonidou
was pressing this issue within the GoC and hoped to obtain
independence for his Department within a year.

State Sells Cyprus's Only Profitable Airline to Itself
-------------- --------------

11. (SBU) In other Cypriot aviation news, the long awaited sale of
Cyprus Airways subsidiary EuroCypria to the GoC went through on
November 13 for a reported sum of CYP 13.425 million (USD 30
million). Since the GoC owns 69.6 percent of the shares of Cyprus
Airways, this was a case of the government selling EuroCypria to
itself. Cyprus Airways decided to sell off its profitable arm in
order to obtain a much needed cash infusion, pending EU approval for
the GoC to guarantee a CYP 60 (USD 132 million) restructuring loan.
Cyprus Airways lost CYP 23.3 million (USD 51 million) for the first
six months of this year compared to losses of CYP 20.4 million for
the first half of 2005. Over CYP 10 million of losses in 2006,
however, were attributable to one-off redundancy payments as Cyprus
Airways continues to try to trim its bloated staff. For years,
successive governments had rewarded loyal supporters with high
paying jobs at Cyprus Airways, regardless of qualifications or the
company's real needs. In June, EuroCypria, Cyprus's only profitable
airline, took delivery of its 5th Boeing 737-800.

SCHLICHER