|2nd February 2021|
|Andrii Yarmak, head of UkSATSE: The aviation industry has not faced such challenges since World War II|
|One of the industries most affected by COVID and related 2020 restrictions is global aviation. Ukrainian airlines, airports and other players on the aviation market were not an exception. Among them is the strategic state enterprise UkSATSE, which under international treaties is responsible for air navigation services in Ukrainian airspace and over part of the Black Sea.
Its air traffic controllers are the "eyes" and "ears" and the "guiding star" for the crews of aircraft flying to and from Ukrainian airports or transiting the skies over our country.
According to UkSATSE data, last year the company provided air navigation services to just over 142,000 flights. This is 57.6% less than in 2019 and almost four times less than in successful 2013. Consequently, we are talking about huge financial losses for the company and for the state. How was it possible to preserve the staff under such conditions? Is it possible to maintain the infrastructure, on which the lives of thousands of passengers depend, in proper condition? And what does the implementation of plans for a new, better - as we all believe - year depend on? About this and more we talk to Andrii Yarmak, head of Ukrainian State Air Traffic Services Enterprise (UkSATSE).
The disappointing financial results of 2020 and the forced "belt-tightening"
– Mr Andrii, as noted in the enterprise's Press Release, it has been hit particularly hard by the drop in international (-57.7%) and transit (-63.2%) flights. The number of domestic flights decreased by 31.5%.
If it is not a matter of commercial secrecy, what did it cost to UkSATSE and Ukraine "in-the-money"?
- Since March, air traffic in Ukraine has started to decline rapidly. On some days - in April, for example - the drop in traffic was as much as 98% compared to the previous year. The final losses in 2020 have not yet been calculated. But the scale is not difficult to estimate ... World aviation has not faced such challenges since World War II.
Under such circumstances, there were three main directions for us:
• ensure continuous operation of the strategic enterprise for the state - after all, we perform the sovereign function of the state, we are responsible for the sky over Ukraine, as well as for part of the airspace over the Black Sea;
• safeguard employees (of which there are more than 4,000) from illness;
• learn to live with the new financial and operational realities, as our income has been drastically reduced.
- Didn't you have to economise on people by sending them on unpaid leave or, God forbid, to the labour exchange? Or is it that unique specialists who take decades to educate - controllers, engineers of radio navigation, radiolocation, automated traffic control systems and others - do not run the risk of ending up on the street?
- Indeed, the company employs highly qualified specialists, who take between five and seven years to obtain their qualifications. Therefore, we cannot afford to lose such unique specialists. That is why we reacted quickly to the new reality and developed a complex of measures for the short and medium term in order to minimise the negative effects of the crisis - including financial ones - to retain the team, guarantee the provision of quality services and ensure safety in the Ukrainian sky.
We have coped 100% with this task. The high level of service, standardisation of processes and safety assurance is confirmed by the results of a certification audit by the State Aviation Administration of Ukraine.
Last year we even successfully passed two audits. In addition to the already mentioned evaluation at national level last December, we also passed an international audit. As part of restoring Uzhgorod Airport's operations, one of the conditions was for UkSATSE to receive a certificate from the European Aviation Safety Agency (EASA). We successfully passed the certification process and were able, on the one hand, to proceed to the practical restoration of the airport's operation. On the other hand, we assured our European partners once again that UkSATSE ensures full and safe operation of the air navigation system in the sky over Ukraine in accordance not only with all national certification and regulatory requirements, but also with European ones.
In addition, we have done a lot through social dialogue in close cooperation with the trade unions (the company has more than 40 of them, and has the best collective bargaining agreement in the whole industry). Unfortunately, due to a significant reduction in air traffic and a significant worsening of the company's financial situation, it was necessary to make "point-by-point" changes to the collective bargaining agreement. We have temporarily suspended some social guarantees, revised some of them, and postponed some of payments. Last year we were even forced to introduce downtime first and then part-time work for employees in order to reduce financial burden on the payroll in the face of a total drop in revenues. The interaction with most of the unions, however, has been constructive because we generally have a fairly coherent team.
However, not everyone is ready for the changes - there are examples of outright destructiveness in an already difficult situation. There are forces that use difficult times to launch information attacks on the enterprise for legal action. In particular, some former managers are artificially creating a negative atmosphere around UkSATSE and spreading turmoil among their colleagues in order to implement their political and personal financial projects and return to their former positions. Difficult times are for the unification, search and implementation of new ways of development. The actions of these people do not contribute to this. However, I am convinced that we will come out of the crisis stronger, because the results of last year are a good proof of that.
- And how has the crisis affected the maintenance, scheduled maintenance and modernisation of air navigation, meteorological and other equipment under your jurisdiction: communication systems, control centres, etc.? And most importantly: won't there be any safety risks as a consequence?
- In order to guarantee safety, we cannot neglect the maintenance and scheduled maintenance of the infrastructure. Therefore, all work is 100% complete and all equipment is fully functional. In addition, the operation of most equipment has additional overlap with adjacent stations in case of failure.
Moreover, despite the crisis, we have not stopped introducing new equipment and implementing projects for the future. After all, there is some equipment that was purchased in previous years or delivered in 2020 under previously concluded contracts. This is where all the energy and resources have been invested. As a consequence, there is something to boast about in almost every regional unit. For example, automatic air traffic control systems have been upgraded at Kharkiv RB (regional branch - ed.), Dnipro RB and also at Zaporizhzhia ATCC. A completely new automated air traffic control system - the most modern system developed by a European manufacturer - was installed in Lviv. In other words, a course has been taken to unify these systems for all RBs in Ukraine.
We have also proceeded to the final stage of installing a new locator in the city of Bakhmach, Chernihiv region. This equipment was purchased back in 2016. Last year, all preparatory work was done. Now the installation and adjustment of the equipment is in progress. We have also upgraded the voice communication system for Lviv and Kyiv RBs. We will continue upgrading the enterprise's infrastructure in the new year.
RESTORING THE COUNTRY'S TRANSIT POTENTIAL, WHICH IS ONLY PARTIALLY IMPLEMENTED DUE TO THE POLITICAL AND ECONOMIC CONTEXT
- Regarding the transit air corridors that earn the country currency. After occupation of Crimea and part of Donbass, after the tragedy with the Malaysian airliner in July 2014, they significantly "narrowed". What did we lose and what did we manage to restore?
- I've been waiting for this question. And I even prepared special maps to show you. As you said, difficult times for traffic in Ukrainian airspace did not start in 2020, but after the annexation of Crimea and the start of Russian aggression in Donbass - since then there were restrictions on use of part of our airspace, which significantly limited transit potential. Since 2014, transit flights have decreased by more than 60%. Servicing such flights used to be the main source of income for UkSATSE.
Example of actual daily traffic as of 03.08.2013
Example of actual daily traffic as of 03.08.2019
Since 2015, we have been working with European partners to restore the country's transit potential. Last year, the European Aviation Safety Agency and the US Federal Aviation Administration confirmed the effectiveness of the introduced special procedures for air traffic services in the Simferopol Flight Information Region (over the Black Sea), and recommended six air routes in the area to be used by the world's airlines. On the one hand, it is a potential financial income and an international confirmation of the right for Ukraine to provide safe air traffic services in this area. On the other hand, it is an opportunity to gain additional benefits for airlines. This includes flight time reduction, fuel savings, environmental benefits and the like. That is why we are now actively working on how to use these routes more efficiently. We negotiate with air carriers: we show them the potential benefits by carrying out specific simulations and providing appropriate calculations for the flights that can be operated on these routes. The State Aviation Service - for its part - is trying to resolve the issue at the level of the aviation authorities of a particular country. Working closely with the Ministry of Foreign Affairs, through Ukrainian embassies around the world, we convince foreign colleagues, airlines that special procedures are in place to fully guarantee flight safety in this area, and that it is cost-effective to use its opportunities.
We expect global airlines to return to these routes. After all, after the annexation of Crimea and the closure of part of the airspace over the east of the country, the routes have mostly shifted south (along the Turkish coast) and, to a lesser extent, northwards, via Belarus.
By the way, there are already some modest but fairly good results. Last year, a Turkish low-cost company and an Israeli carrier started using these air routes.
Expansion of the airspace available for flights over the Black Sea and in the eastern part of the airspace, according to EASA documents (SIB 2015-16) and FAA (SFAR 113)
- And for which destinations could the new routes proposed by Ukraine be profitable? And at least a rough estimation of their efficiency for airlines. What do they gain in mileage, in flight duration, in money?
Ukraine has a very favourable geographical position. All the corridors from west to east, in South-East Asia, pass over Ukraine. Our airspace can also be used for flights from the Persian Gulf to Central and Northern Europe.
The economic effect for air carriers depends on the length of the route and can range (conventionally) from saving a few minutes to half an hour of flight time. This is a significant resource saving for airlines in the case of a large number of flights, which is very relevant - especially in the post-crisis period.
AIRLINE COMPLIANCE WITH THE SANCTIONS REGIME AND THE "EUROPEANISATION" OF THE PAYMENT SYSTEM
– Are there still any problems with airlines' compliance with the sanctions regime in the area? I read in interviews of your predecessors, there were cases when Russian air traffic controllers from occupied Crimea tried to "intercept" planes which were under Ukrainian control in our area of responsibility...
– Such incidents have not occurred recently, as the special procedures introduced since 2015, among other things, include post-implementation monitoring. We submit monthly reports both to the State Aviation Administration of Ukraine and to European partners regarding possible incidents. There have not been any such cases for several years. That's why we received the mentioned decision from the European and US airspace safety regulators - Ukraine's experience in implementing special procedures for the use of airspace proved to be successful one.
– In an earlier interview you mentioned the approval by EUROCONTROL of the technical integration of UkSATSE into the Joint Route Charges System as an important achievement of the challenging year 2020. What does this mean for the enterprise, for its partners - Ukrainian and foreign airlines - and for the whole country? Does it really matter that much? Maybe it is more profitable and simpler when UkSATSE itself charges resident and non-resident companies for air navigation services?
– Ukraine became a member of Eurocontrol in 2004. The only thing that was missing in order to be fully operational within this European organisation was integration into the Joint Route Charges System. Last year, we finally succeeded in obtaining the approval of all EUROCONTROL participants regarding Ukraine's accession to this system. This is a great success for the country and for our enterprise in particular. Technical implementation will take place during this year. We plan that from 1 July, EUROCONTROL will already collect charges on behalf of Ukraine for air navigation services rendered by the enterprise.
The main advantage of this approach for Ukraine is implementation of the European vector of international cooperation. It is about transparency (visibility) for all market participants and implementation of European tariff policy principles. It is also convenient for airlines - we will provide them with our five-year financial planning and fare policy data. We have now completely switched to a system of reviewing route charges every year - in consultation with airlines. As the rest of the European states do. In addition to the benefits of predictability and transparency, a benefit of the new system for airlines is a simplified payment procedure for air navigation services.
The benefit for UkSATSE, among other things, is that EUROCONTROL guarantees payment for rendered air navigation services. That is, all charges invoiced on behalf of Eurocontrol are usually paid in full and on time.
- Through the “influence” of the European institution itself or are some insurance mechanisms envisaged?
– First and foremost, because of the influence of EUROCONTROL on virtually the entire airspace of its member countries. By failing to fulfil its obligations to one of its partners, a carrier loses the chance to fly to dozens of countries. On the other hand, insurance mechanisms also exist. Insurers provide, among other things, the possibility to offset the negative consequences in case of airline bankruptcy. There are special procedures for this; there is a separate unit defending the interests of all Eurocontrol participants in the financial liabilities of airlines that have failed, for example. It is one thing for each market participant to act on their own, but it is another thing for a collective action and a collective request for repayment.
- By the way, are there any new problems in UkSATSE's relations with partner airlines? Are there any arrears in settlements due to force majeure? And are you ready to meet your partners halfway by offering, for example, debt restructuring programmes?
- UkSATSE has agreements with all airlines, on the basis of which we provide services. The documents stipulate clear rules of payment, as well as penalties for late payment. This is why we work with all airlines in a single, understandable way. Of course, the pandemic has made its own adjustments, affecting the financial situation of market participants. However, we have clearly agreed: solving our own financial problems at the expense of our partner is not only wrong, it is harmful to the whole market.
Therefore, the level of payment to the carriers is quite high. Some companies have switched to weekly payments. And if we see that certain debts are growing, we go to court according to the legislation in force.
LEGAL BATTLES WITH UIA AND THE AGGRESSOR STATE
- Then we come to the so-called main claims, which everyone who is interested in the situation in the aviation industry is familiar with. I am referring to the claims of Kolomoyskyi's company UIA against UkSATSE and of UkSATSE against Russia. With the latest: in November, the Supreme Court's Chamber of Cassation upheld the enterprise's position and obliged Ukraine International Airlines to conclude a contract for the provision of air navigation services. Can we say that the dispute is over?
- A conflict situation with UIA has arisen since September 2018. At the time of my appointment (October 2019), the airline had accumulated quite substantial debts and refused to pay issued invoices. There have been many lawsuits on the part of the UIA, not only relating to debts, but also to penalties, contract terms and conditions and the like ...
UkSATSE has already obtained positive decisions in a number of cases, winning all of them concerning the terms and conditions of contracts, obtaining an acknowledgement that we have not applied any discriminatory measures to UIA, and confirming other principal issues of mutual settlements for us. There are still cases on the merits of specific debts and penalties to be dealt with. So there have also been pandemic injunctions in the judicial system and the hearing was postponed several times. We hope that in 2021 it will be possible to put an end to the legal confrontation. UkSATSE will prove its legal right to receive funds for actually rendered services.
- What amounts are we talking about? Or is it a commercial secret?
- These amounts are "dynamic". They are constantly increasing due to the accrual of penalties according to the contracts in force, so I can't give exact figures. In general, we are talking about a rather significant debt of UIA to UkSATSE (as of early 2020, UIA's debt for air navigation services, including penalties, exceeded UAH 1 billion. - Ed.). In the event of a positive verdict for us, we will get a big boost to the enterprise's financial situation.
– Doesn't UIA make current payments either? ...
- Since the beginning of the quarantine, we have been interacting on a weekly payment scheme. This settlement format is respected by the airline.
- Regarding Uksatse’s property stolen by Russia during the annexation of Crimea and the seizure of Ukraine's eastern regions. Judicial perspectives, despite the fact that in this area we unfortunately do not have such leverage as, say, the domestic GTS in "gas" relations with the aggressor state, when the Russian Federation was forced to make concessions in order to fulfil its binding obligations towards Europe?
– These cases have been in progress for a long time, dating back to the annexation of Crimea. UkSATSE provided the governing body with all the information on the assets located on the peninsula, as well as their balance value. This information is periodically updated. The losses, according to our calculations, exceed one billion hryvnias. In addition, we are talking about huge amounts of lost revenue due to the fact that most of the air flows in the region have shifted to Turkey's area of responsibility. As of last year, we estimated the shortfall in revenues would be UAH 20 billion. And this amount is growing every day. All of this will be taken into account in an international lawsuit for compensation to Ukraine by the aggressor state.
PERSPECTIVES 2021: BETWEEN OPTIMISTIC AND PESSIMISTIC SCENARIOS
- Finally, please summarise your plans for the short term (2021) and the medium term. What do you consider to be the optimal outcome for the company this year, depending on the "pandemic scenario"? And what are the prospects and current challenges in the implementation of the UkSATSE development strategy until 2030?
- First of all, we expect the pandemic situation in the world will stabilise. When governments begin to lift restrictions, people's mobility will increase and, as a result, airlines will be able to take to the skies again. This means that our company will also be able to return to normal operations. According to EUROCONTROL colleagues, there are three scenarios - depending on how effective the vaccines are and how intensive the vaccinations are. Under no circumstances, unfortunately there will not be an overnight recovery in our area. Forecasts for the recovery of air traffic at the level of 2019 range from 5 to 10 years.
But this does not mean that we should sit back and wait for traffic to recover on its own. Whether optimistic or pessimistic scenarios materialise, we will continue to work this year to restore transit to Ukrainian skies.
We will continue to upgrade the equipment. First of all, we are talking about commissioning three locators. I have already mentioned one in Bakhmach. We will also install two locators in the south of Ukraine to provide even better surveillance of the southern part of our airspace.
We plan to complete the modernisation of the automatic air traffic control system in Odesa. This will enable us to finalise the unification of such equipment across the country. In addition, we are starting to modernise the receiving and transmitting centres, i.e. to upgrade the communication system for the whole of Ukraine. Some of the equipment has already been installed since last summer. By the end of this year we plan to complete all the work. So, now we have rather limited financial resources for new capital investments. However, we plan to finalise what has already been started and are determined to put into operation everything that we acquired under last year's contracts. We may also be talking about local but important systems that are lacking in order to improve the quality of services. If financial flows recover quickly, we will return to implementing more ambitious plans.
- All the more considering the perspectives (and the shift from talk to direct funding from the budget) of construction of a new airport in Transcarpathia, construction of a new runway and renovation of airfield equipment in Dnipro, modernisation of a number of regional airports ...
- We would like to do our best to implement à new and partially postponed infrastructure modernisation plans of last year. As for the big state airport construction that you have mentioned, we also keep our hand on the pulse, help in every way with the planning and take part in the modernisation of airport equipment. And this is not only about Dnipro, Uzhgorod or Odesa. We upgrade the infrastructure of other regional airports as well. We are talking, for example, about Kherson and there are plans for Vinnitsa.
- Will the new air corridors that you have already mentioned start generating profits for the enterprise and the country...?
- They are open on an ongoing basis, we are constantly negotiating with airlines. And, as I said, there are already quite a few developments and clear calculations made for specific air carriers. The first and foremost task is to return transit to the Ukrainian sky. After all, it is transit flights that bring in the bulk of revenues for such companies. Therefore, it is very important for us to make full use of this potential. This is why it is very important for us to use this potential to maximum extent. So far, according to my calculations, for the reasons already mentioned, we have used only 20 per cent of it. This is why there is still a lot to do in order to "take off".
A parallel task is to unify and modernise equipment. After all, a lot of our equipment has been in operation since the early 2000s. And technical progress - in our field first and foremost - is substantial. We need constant renewal so that our entire system will be modern, efficient and safe.
To sum it up: I hope that by the middle of this year we will have completed the structural changes, traffic will start recovering and we will be able to return to normal operations in the second half of the year.