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23 February, 2015  ▪  Stanislav Kozliuk

To Sell Boryspil Airport

During the Yanukovych era, Boryspil International Airport went through at least two high-profile scandals associated with the attempts to transfer it into private hands. But even after officials were changed in offices, these attempts continue

Worries as to the future of Boryspil Airport date back to the last year of the Yanukovych regime, when Oleksiy Kochanov was appointed its director, to be later replaced by Serhiy Hombolevsky, allegedly linked to Odesa businessmen Boris Kaufman and Oleksandr Granovsky. Kochanov was instrumental in bringing Odesa airport under total control of private business structures. A similar scheme to "privatize" the airport was expected to be used in Boryspil. But the Maidan disrupted the existing schemes, to a certain extent. The next tide of opaque reforms of the state-run company began with the appointment of the new Director General, Yevhen Dykhne, coming there from Lviv Airlines and Ukrainian Railways.

Quiet "optimization"

The newly appointed head of the airport set to "optimize" the workflow. On November 29, 2014, Dykhne issued an order to outsource the airport's ground handling operations. The order envisaged purchasing such services, starting February 24, 2015, from private companies. The airport's trade union appealed to the Ministry of Infrastructure, stating that the state-owned enterprise could not afford outsourcing its profitable operations. It should be recalled that the situation happened at the end of the last year, under Hombolevsky's management. Back then, the trade union sent open letters to the Prosecutor's Office and the SBU, Ukraine’s security service. The SBU reacted, and the order was revoked. The order signed by Dykhne, according to the trade union's management, almost literally replicated the one issued by his predecessor. In their open letters, Boryspil staff predicted possible layoffs in other departments as well. Which, in fact, followed shortly.

On December 12, order No. 01-07-1207 was issued, that virtually spelled out the plan to transfer a part of Boryspil's operations to private entities, accompanied by staff reduction. The airport's management issued a report on its operations, trying to make some of them look as loss-making. However, the trade union learned about this development almost a week later, on December 16.

"This order was released on the quiet; we got hold of it in the evening of December 16, by pure chance. We received it as a picture taken with a cell phone. Obviously, we reacted by appealing to the Presidential Administration, the Prosecutor's Office, the Ministry of Infrastructure, and the Parliamentary Committees on Transport and Corruption," said the Head of Boryspil Airport Independent Trade Union, Serhiy Stotsky.

"The order actually stated that starting January 1, the airport was to pay to a third party for ground handling and passenger handling services. No one discussed it with the union representatives," he added.

Why trying to outsource these services? The action group members explained that today such services are offered by only two companies on the Ukrainian market: Interavia and Aerohandling. Both are linked to Ukraine International Airlines, believed to be part of the Ukrainian business tycoon Ihor Kolomoisky's business empire – the first one as a subsidiary, and the second one indirectly. If Boryspil airport stops providing these services, it will lead to market monopolization. In this way, the owners of the above two companies would be able to charge any fees for their services. In the absence of alternatives, carriers would just have to pay. By the way, Boryspil even issued warnings to airlines about the termination of passenger handling services.

Besides, during the "optimization," according to the statement made by the trade union, about 700 airport employees could get laid off. The Ministry of Infrastructure, however, denied this, while Boryspil press office replied to the enquiry made by the The Ukrainian Week that outsourcing a number of services was actually planned, but a mandatory requirement to tender participants was ensuring staff employment.

"How the profitability of specific operations was calculated remains a mystery. For instance, we have such service as aircraft deicing. It is provided by ground handling department. However, special purpose vehicles are charged with the chemical agent by custom vehicles department. And it is this department that procures it. The management's calculations show that the expenses involved in purchasing the liquid were attributed to both custom vehicles and ground handling departments. But the ground handling department does not buy it. This means that nonexistent costs were attributed to it," explained the initiative group's representatives.

An audit showed that the "loss-making" ground handling service for the period analyzed by the administration actually earned a profit of nearly UAH 3mn.

"All we heard from the management were the allegations of losses made by the ground service. However, we were never given any facts. Neither at the request of the labor collective, nor the trade union, nor the initiative group. We analyzed the financial performance of the departments with our financial service. The results were quite different from the management's claims. In fact, we can talk about UAH 3mn profit made by the ground handling service," the The Ukrainian Week was told by the airport employees.

In late December, they arranged for a meeting with Andriy Pyvovarsky, the Minister of Infrastructure. At the meeting they learned that Boryspil was waiting for an audit team, and that its Director General Yevhen Dykhne was placed on leave until January 12. That is, basically, suspended from work. On December 30, it turned out that the Ministry was planning to organize a transparent competition for the position of the Director General of Ukraine's largest airport. Later, on January 12, another meeting was held between Pivovarsky and the airport staff. At this meeting, the results of the auditors' work were presented. The airport's critical points, according to the Ministry, were poor leadership and a lack of direction. Besides, the Ministry of Infrastructure expressed the dissatisfaction with the fact that Boryspil makes little profit from non-aviation activities (such as duty-free shops, cafes, restaurants, parking lots, hotels, and advertising). Major world airports earn about 40% of their revenues from such activities. For Boryspil, this figure is twice lower, at about 20%. However, the problem, most probably, is to be solved by the new director.

In addition to the layoff, Dykhne's name is associated with one more scandal. The collective labor agreement has not been signed to this day. Besides, the trade union claims the disappearance of a few million hryvnya allocated for employee benefits.

"When Hombolevsky held the Director's post, we planned to sign the agreement. The document was ok, and provided for social security, employee insurance, and so on. Basically, it had to be re-signed. There was only one issue left: interest free home loans," Stotsky said.

"The management allocated UAH 3mn for interest-free housing loans annually. We have several employee categories eligible for such loans: people on accommodation waiting list, veteran workers, vulnerable employees, and highly qualified specialists. Only this last issue remained to be discussed. While people tried to obtain the certificates confirming the absence of housing, Hombolevsky was sacked. The new Director General was appointed. When we came to the first meeting with the new management, we found out that those UAH 3mn were missing. Two months earlier they were there, and then they disappeared. We asked the Administrative Director to explain to the union in writing where the money went. There was no answer. As a consequence, there is no answer as to the collective agreement," said the union representatives.

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A complicated relationship with UIA

In a letter to the Ministry of Infrastructure, Boryspil employees complained that the airport was losing money by providing services to Ukraine International Airlines at cost or at no cost. It has to be noted that this company is Boryspil's major carrier, operating about half of the flights. However, the only results of this cooperation for the airport are litigations and debts. As of today, they amount to nearly UAH 400mn.

"50% of all UIA transfers from Ukraine's domestic airports and to international destinations go through Boryspil. Kharkiv, Odessa, Lviv, and Dnipropetrovsk – all these cities fly to Europe via Boryspil. We really depend on International Airlines to a large extent," said the airport employees.

"UIA pays for our services under several contracts. As for the contract prices, no one knows how exactly they were set, except for the directors. The documents were signed by Anton Volov, and later by Oleksiy Kochanov. It was Kochanov who signed a collateral agreement with UIA (No. 30). This agreement stipulates that the service prices should not be below the cost. However, we are not interested in such terms. The revenue we earn from our major carrier equals to zero, and this is not right," the action group complained.

"Let's say, Ukraine International Airlines have discounts for such services as baggage handling. But no one knows where the discounted prices come from. One has to understand that this is not a cheap service, because it is a complicated procedure. The baggage is transported from the check-in counter, x-rayed, and sorted. The system on Terminal D is even more complicated. Still, UIA is paying a symbolic price," the airport employees added.

The company also has preferences for airport taxes.

"Airport charges are our main source of revenues. There are three types of them: passenger facility charge, takeoff/landing charge, and security charge. Any company has to pay a certain amount per each passenger, but UIA have discounts. They also have discounts for takeoff and landing, depending on the aircraft weight. The only fee for which they don't have discounts is security charge," Boryspil activists said.

However, Boryspil management neither confirmed nor denied these claims, stating that service fees for Ukraine International Airlines are confidential information that cannot be disclosed according to the existing contracts.

"We are not against UIA, we are for major carriers. We are ready to offer them preferential terms. But we need to understand what we get in return. For the time being, we only get court proceedings. They have some outstanding debt to us. They started paying it only recently. In fact, we are surviving thanks to other companies," stress the airport workers.

However, the meeting of Minister Pivovarsky with the staff has demonstrated that the UIA issue is not a priority for the Ministry.

"The issue of UIA cannot be resolved quickly. In order to make claims to that company, we need to have a plan B. If it goes out of business, then maybe in six months someone else will come to the market. But we will need to survive this period somehow. And in 2015, we have a heavy burden of Japanese loans to be repaid", stated the action group.

The airport employees added that an open skies agreement could become such "plan B." If it is signed, the largest Ukrainian airport would finally have alternatives, and therefore, a company to take the UIA niche. At the same time, Boryspil's major carrier could change their attitude towards cooperating with the airport. However, such future developments today are nothing more than the subject of discussion. For the time being, the new management, to be selected in an open competition, will have to focus on the real optimization, rather than making statements.


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