Domodedovo cancels flights as the chances of state paying bills recedes and tax police freezes its accounts

Published: 1/21/2000

At 10pm 19th January, Domodedovo Airlines (DA), Russia"s third largest airline cancelled flights throughout Russia, in protest at the government"s non-payments to the carrier it 100% owns. According to the airline"s General Director, Alexander Akimoy, the state owes them over $7m. He cites the principle culprit as being the Ministry of Defence (MoD) that, he claims, has not paid any debts since 1997. The airline has taken this action now because the budget currently passing through the Duma does not provide for the debt"s payment. The protest may also be partly motivated by the fact that Domodedovo has had its bank accounts blocked by the local tax office, for non-payment of 25m rubles of back taxes, so making it impossible to settle the airline"s operational expenses, including fuel. The block on the accounts is despite the fact that the airline, unusually for Russian corporates, has a reasonable tax record. According to reports in Itar-TASS, in 1999, it paid 180m rubles of taxes and 25m of arrears. Flights cancelled include Yuzhno –Sahahkinsk , Vladivostok, Khabarovsk, Kamchtka, Magadan, Tashkent and Baku. The discontinuation of flights will have a major impact on the Far East , particularly Sakhalin. Some flights are reported as having been restarted to Anadyr and Yuzhno-Sakhalinsk as DA is the only provider of flights to those destinations and the suspension effectively cut them off. There also reports in the Moscow press of some very unhappy passengers stranded at airports and DA is unable to provide any accommodation because the hotels demand payment and it cannot offer it. Travel agents are also reported as being unwilling or unable to refund tickets as the monies have already been transferred to DA. For DA in the current market environment, this cancellation is nothing short of a financial and marketing disaster. Under Russian accounting the airline is profitable and many of its competitors, particularly Vnukovo are very weak giving it an opportunity to increase share at the expense of other players. The cancellation of flights so suddenly and the apparent inability of the airline to resolve the situation can only hurt prospects. Reports are also emerging that the management of the company are also under personal investigation by the tax police, which adds further uncertainty to an already uncertain situation. An interesting twist of rumour is the story, we suspect may be coming for DA, that the funds for payment of DA were available, but were transferred form the MoD to the Railroad Ministry when the Deputy Prime Minister Aksyonenko changed portfolio and became head of the Railway Ministry again.

Article ID: 1338