Viktor Dovhan: How to save the airlines industry in Ukraine

The suspension of scheduled air services, the closure of national borders and other measures taken in many countries to combat the spread of the COVID-19 coronavirus have caused catastrophic air traffic volumes. All aviation market participants suffer from this situation. For the first time in almost 30 years, the Ukrainian sky has virtually been emptied – in aviation today there are extraordinary challenges.

Due to the decision of the National Security and Defense Council and the Cabinet of Ministers of Ukraine to suspend scheduled passenger air services from March 17 to April 24, 2020, a critical situation has arisen in the aviation industry of the country, which requires urgent intervention of state bodies.

In Ukraine, the fall of air traffic volumes on the day of March 18, 2020, compared to the same date in 2019 is 58%. In particular, domestic flights decreased by 56%, international flights by 66% and transit by 45%. Forecast after the return of Ukrainian citizens by special flights and closure of passenger transportation on April 27, 2020, we expect a drop to 90%, that is, in fact, the absence of air transportation.

Boryspil and Lviv International airports lost 98% of revenues and virtually discontinue operations, with a 32% annual fall in passenger traffic compared to 2019. The situation is compounded by the fact that many airlines are unable to pay arrears (about Hr 800 million) to airports. Emergency measures are being taken today to reduce costs: closed Terminal D at Boryspil Airport and major infrastructure facilities, reduced costs for infrastructure maintenance (cleaning, energy, fuel consumption, reconditioning, etc.), 75% of staff are sent on vacations.

However, the efforts of the state airports are not sufficient to overcome the critical situation, the Government needs to take immediate measures, namely:

1. Provision of financial state aid to Lviv and Boryspil international airports, a state-owned air traffic service company UkSATSE
2. Provision of stabilization loans to Ukrainian air carriers with the aim of paying off debts to the state airports Boryspil, Boryspil and UkSATSE.
3. Making a decision on installments (deferral) for 90 days of taxes, fees (including the tax on personal income), a single contribution to compulsory state social insurance, deduction to the state budget of part of the net profit (income) of aviation enterprises.
4. Approval of the financial plan of Boryspil International Airport for 2020, as this is a condition for state banks to obtain new loans and postpone the maturity of existing loans.
5. Repeal of obsolete normative acts contrary to the International Financial Reporting Standards, paragraph 13 of the Cabinet of Ministers Resolution of 29.11.2006 No. 1673 on the obligation of state-owned enterprises to report the financial state of enterprises in an unreliable form (without taking into account the reserve of doubtful debts).
6. Reducing the level of deduction of a part of the net profit (income) by the state aviation enterprises to 30% for realization of the concept of development without financing from the state budget.
7. Adoption of the draft law on the application of the zero rate of value-added tax to domestic air transport.

If nothing is done, industry losses will be estimated at Hr 10 billion in the first quarter of 2020 (air carriers, airports, handling services, air navigation service providers). We must unite our efforts to prevent Ukraine from becoming a white spot on the aviation map of Europe and the world.

Viktor Dovhan is an adviser to the minister of infrastructure in Ukraine.