Identifier
Created
Classification
Origin
09BELGRADE1330
2009-11-12 11:51:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Belgrade
Cable title:  

Serbia's Flying Circus: Opening JAT to Competition

Tags:  ECON EAIR EINV JAT SR 
pdf how-to read a cable
VZCZCXRO5845
RR RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSL RUEHSR RUEHVK
RUEHYG
DE RUEHBW #1330/01 3161153
ZNR UUUUU ZZH
R 121151Z NOV 09
FM AMEMBASSY BELGRADE
TO RUEHC/SECSTATE WASHDC 0372
INFO EUROPEAN POLITICAL COLLECTIVE
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RHMFISS/HQ USEUCOM VAIHINGEN GE
RHMFIUU/FAA NATIONAL HQ WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUCXJAC/JAC MOLESWORTH JCDX RAF MOLESWORTH UK
RUEHBS/FAA EUROPE AFRICA MID EAST RGN HQ BRUSSELS BE
UNCLAS SECTION 01 OF 03 BELGRADE 001330 

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EAIR EINV JAT SR
SUBJECT: Serbia's Flying Circus: Opening JAT to Competition

REF: A) BELGRADE 1136; B) BELGRADE 697; C) BELGRADE 751

SUMMARY

-------



UNCLAS SECTION 01 OF 03 BELGRADE 001330

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EAIR EINV JAT SR
SUBJECT: Serbia's Flying Circus: Opening JAT to Competition

REF: A) BELGRADE 1136; B) BELGRADE 697; C) BELGRADE 751

SUMMARY

--------------




1. (SBU) After an early October strike by aircraft maintenance firm
JAT Tehnika that grounded JAT airline planes (Ref A),Serbia's
civil aviation officials are picking up the pace to open the market
to foreign competition and expand airport facilities. Foreign
carriers, especially discount airlines, are moving to enter or
reposition themselves in the market after planned December
relaxation of Schengen visa requirements for Serbia. The only
airline not positioned to enjoy the benefits of these market
changes is the bankrupt national carrier JAT. Aviation officials
and market observers agree that the airline has little future, but
cannot agree whether it is best to let the carrier die quickly or
just slowly fade away. END SUMMARY.





Aftermath of JAT Tehnika Strike

--------------




2. (SBU) The two day strike by JAT Tehnika at the beginning of
October (Ref A) ended with no real agreement between JAT Airways
and JAT Tehnika. The government paid most of JAT's debts to JAT
Tehnika, but problems remain. The government's most pressing
decision is whether to let JAT continue as a "zombie company" or
pull the plug and leave the bankrupt airline to its fate. JAT
continues to lose money due to inept management, political cronyism
and bad service. The airline can only keep half of its total fleet
of sixteen planes flying and cancels at least two daily flights
from Belgrade, Velimir Radosavljevic, Belgrade's acting airport
director, told us on October 28. Slobodan Stamenkovic, Lufthansa's
account manager for Serbia told us on November 3 that JAT also
maintained expensive offices in cities across the world, including
Toronto, New York and Sydney, even though it had not flown to any
of these cities for over a decade. Civil aviation officials have
responded to this dilemma by taking steps to open Serbia's aviation
market to foreign competition and expressing a strong desire to
privatize JAT Airways.



Serbia Opens Skies

--------------




3. (SBU) In anticipation of the EU's planned visa liberalization
for Serbia in December (Ref B),Serbian aviation officials seem

determined to fully implement the European Common Aviation Area
(ECAA) open skies agreement and open their market to foreign
competition. Nebojsa Starcevic, director of the Serbian Civil
Aviation Directorate, told us on October 30 that "Serbia has the
most liberal approach to implementing the ECAA at the moment."
Starcevic said that his ministry had issued licenses to two new
airlines to fly into Belgrade beginning in December and that they
would issue more licenses to anyone who applied. He also said that
Serbia was finalizing bilateral civil aviation agreements with
Australia, Russia and China and that he expected an open skies
agreement with the United Arab Emirates to be signed in November.
He added that flights between Serbia and the UAE would start in
summer 2010 and intercontinental flights through Belgrade by 2011.
(NOTE Starcevic did not outline any specific actions his ministry
was taking to prepare Serbia for Tier One FAA certification.
Miodrag Miljkovic, the State Secretary for Aviation in the
Infrastructure Ministry, told us on November 3 that his office
would soon submit a new draft civil aviation law to Parliament and
hoped to have it adopted by the beginning of next year. He gave a
copy of this law to us and we have passed it on to the FAA for

BELGRADE 00001330 002 OF 003


comment and review. END NOTE)





Belgrade Welcoming Discounters

--------------




4. (SBU) Velimir Radosavljevic told us on October 28 that
Belgrade's airport was actively courting discount airlines and
planned to dedicate a terminal solely to these carriers. He said
that Wizzair, Central Europe's largest discount airline, was
interested in Belgrade as a hub. He calculated this would add over
300,000 new passengers annually flying from Belgrade. He said that
total passenger numbers for 2009 would be around 2.4 million and
that he expected over 3 million passengers in 2010. Emirates
Airline would begin flying four times per week from Abu Dhabi and
that other airlines had increased passenger capacity from Belgrade
as well, Radosavljevic said.





Strategic Partner Needed for JAT

--------------




5. (SBU) Recent Serbian government moves to open its air market
have raised further questions about the future of JAT Airways.
Miljkovic told us on November 3 that the government hoped to
privatize the airline next year, adding that it could not survive
without a strategic partner. Srdjan Radovanovic, the airline's
CEO, told us on October 30 that the airline's ultimate goal was to
find a strategic partner. He believed JAT could retain its 40%
share of Belgrade airport flights and keep its status as Serbia's
national carrier. He said JAT would continue flying to overseas
destinations and that it welcomed increased competition from other
carriers. When asked about JAT's plans to become more competitive,
Radovanovic compared the Serbian aviation market to Belgrade's
"Silicone Alley" entertainment district. He said that where there
had been only one bar twenty years ago, now there were many and all
were profitable. He optimistically predicted the same for JAT and
its competitors.





"JAT is Dead, but They Do Not Know It Yet."

--------------




6. (SBU) Other industry players have not been as positive in their
assessments of JAT's future. On October 28, Vladan Krunic of JAT
Tehnika called the airline a "parasite that was killing its hosts",
adding "JAT is dead, but they still do not know it." CAD Director
Starcevic was equally negative in his assessment on October 30. He
estimated that the airline would not survive the next six months
and said that only radical measures such as a new fleet or deep
cost cutting could save JAT at this point. Starcevic said that JAT
had nothing to offer investors beyond some real estate,
infrastructure and its name. Miljkovic of the Infrastructure
Ministry also admitted on November 3 that while the government was
trying its best to make the bankrupt air carrier attractive for
investors, its only valuable assets were market slots in larger
European airports or real estate in locations such as London.





Boeing Still Leasing

BELGRADE 00001330 003 OF 003


--------------




7. (SBU) JAT has made moves to renew its fleet and turn itself
around despite the growing pessimism about its future. Local media
reported that Boeing secured an agreement with the airline on
October 22 to lease two new planes starting next year. Boeing
officials remain optimistic that this could become a reality. JAT
CEO Radovanovic also told us on October 30 that a JAT
representative was in Dubai exploring options for a future
strategic partner for the airline. Many observers conceded as well
that the airline might have a chance to survive if it repositioned
itself as a regional carrier, focusing on the Balkans and other
nearby European countries.





Established Competition See Opportunities

--------------




8. (SBU) Lufthansa and Austrian Air are the two largest airlines
serving Belgrade. Lukas Negedly, Austrian's country manager for
Serbia, told us on November 3 he was optimistic about the
government's changes to the industry. Although he was uncertain
how visa liberalization would affect air travel from Belgrade, he
thought the government's passenger projections were overly
optimistic. He also said that Austrian did not fear competition
from discount airlines because they served a different kind of
customer. When asked about JAT, Negedly said that the airline had
no real plan for recovery and that no serious airline would
consider investing in the bankrupt carrier. Slobodan Stamenkovic,
Lufthansa's key account manager for Serbia, echoed Negedly's
opinions. He told us on November 3 that JAT was "irrational" and
had "great potential, but that "time was running out" for the
airline. He was also sanguine about the prospects for visa
liberalization providing a large boost to passenger numbers from
Belgrade.





COMMENT

--------------




9. (SBU) Serbian aviation authorities seem to be making the right
moves in opening up the country's civil aviation sector and
bringing real competition to the market. JAT airlines is bankrupt,
ineptly managed, and its aging fleet desperately needs replacement.
Drastic restructuring and cost cutting are imperatives if JAT is to
survive. These measures will be a hard political sell, however.
The toxic combination of Serbian national pride protecting the
national carrier and senior politicians' refusal to solve this
tough problem may keep JAT flying in the face of all economic
logic. End Comment.
BRUSH