Airline's collapse a new blow to recession-hit Cyprus

(NICOSIA) - The collapse of Cyprus Airways nearly two years after a financial earthquake shattered the economy has dealt a new blow to the recession-hit Mediterranean island, experts said Monday.

Cyprus is facing record unemployment of around 16 percent, according to economists who say the situation will only worsen as the national carrier's 560 staff are laid off.

About 300 of them vented their anger in front of the finance ministry on Monday, with unions vowing to hold another demonstration on Tuesday outside the presidential palace.

On Friday the government announced an immediate halt to Cyprus Airways's flights, after European Union regulators ordered it to recover illegal state aid granted to the ailing airline.

The EU ruled that Cyprus broke competition rules by giving the airline a 31-million-euro ($37 million) capital increase and a 34-million-euro rescue loan.

"I spent 23 years in this company. It's my whole life, it was my second home," said veteran flight attendant and father of three Marios Christodoulou.

Ticketing officer Maria, 50, who also took part in Monday's protest, also despaired.

"Where will I go... I am afraid of the next months," she said, fighting back the tears.

On the verge of bankruptcy because of the high exposure of its banks to Greek debt, Cyprus was granted in March 2013 a 10-billion-euro ($13.8-billion) international bailout.

The inevitable bank restructuring has left many people out of work.

The jobless rate now stands at a record high of around 16 percent, according to Cyprus University economics professor Michalis Michael.

"It's a huge number, the third (worst) in the European Union after Spain and Greece," Michael said, referring to two other EU countries hit by recession.

Unemployment in Cyprus, which relies heavily on receipts from tourism, "was very small, around four percent four years ago," he said.

- Blow to tourism -

Income from tourism in Cyprus, which touts itself as a country blessed with more than 300 days of sunshine a year, represents about 10 percent of gross domestic product.

GDP fell to 2.8 percent last year, compared with six percent in 2013, according to official estimates.

But tensions between Ukraine and Russia and the fall of the ruble threaten to undermine further the economy, and cause even more damage to tourism, experts said.

Russians not only represent the largest numbers of tourists who visit Cyprus, but also have deposits worth billions of dollars (euros) in Cypriot banks.

The closure of Cyprus Airways could affect the sector unless officials rally to establish a new airline with the company's logo, as Nicosia says it is trying to do.

The Cypriot government launched a search for potential buyers of the carrier last year but failed to receive any serious interest.

Ireland's budget airline Ryanair and Greece's Aegean were whittled down from an initial 14 suitors when expressions of interest were launched in July last year.

But the interested parties were reportedly concerned about the European Commission investigation of a breach of EU state aid rules.

Michael said the impact of grounding Cyprus Airways could be limited if some of its staff are hired by a new company.

Staff are also demanding they be better compensated for losing their jobs and want to be given priority if a new airline is established.

Meanwhile there is deep bitterness among the airline's staff, who accuse the government of mismanagement and "corruption".

"Everybody is sad. Everybody is disappointed because an airline, with 67 years of history with no accident, even not an incident, closed down," said 50-year-old pilot Andreas Christodoulou.

"The board of directors, the top management of the company were unprofessional, they had no idea about aviation," he said.

Management had been "making money" off the company and insisting on flying "non-profitable routes for political reasons".

The economist Michael also said there had been corruption and that management had failed to "take serious measures to improve the profitability of Cyprus Airways".

The government has defended its decision to halt flights, calling the closure of debt-laden Cyprus Airways, which was facing tough competition on its most popular routes to Greece and London, "unavoidable".