User:PajaBG/Controversy

Management
The contract was ceremonially signed on 1 August 2013, in front of the cameras in the hotel Hyatt Regency Belgrade. However, in 2018, the last acting CEO of Jat Airways Velibor Vukašinović, disclosed that it was all just the show for the public, as the contract was legally signed a day before in "one residential object in Belgrade". The location was later disclosed as the family home of deputy prime minister Aleksandar Vučić (later prime minister and president of Serbia), in Belgrade's neighborhood of Jajinci. Vukašinović also stated that Milutin Mrkonjić, Minister of Transportation in the same government as Vučić, advised him not to sign contracts with the Emiratis, adding that Dane Kondić, the Etihad appointed CEO of Air Serbia, refused to participate in official handover, saying that he is in charge now and that "Serbs don't like to work". Kondić himself is Serbian Australian.

From the start, aviation experts and analysts warned that giving a foreign, minority shareholder full management over the company is troublesome and risky. Main goal of the Etihad was the exploitation. One of the results was the leasing of the planes under the highly unfavorable conditions. Airbus A330-200 for the flights to New York was leased for €50.000 per month which is deemed too high especially since it was leased from one of Etihad's partners. Soon, they number of flights dropped from 5 per week to only 2, which is economically unacceptable. The move to let foreign companies to operate the long distance flights was deemed worrisome.

The diaspora in the USA and Canada, which was mentioned as the main reason for the re-establishment of the New York line, was dissatisfied with what was described as the "bad commercial services". Air Serbia neither opened representative commercial office nor concluded special contracts with American transportation companies which would arrange transportation of the passengers from and to the John F. Kennedy International Airport in New York. It was the usual practice of Jat Airways. Similar problems are reported by the passengers on European flights, too. One of the especially unprofessional moves was the temporarily halting of the New York line in September-October 2019. Despite claiming those were planned and scheduled technical repairs of the plane, the halting was announced less than two weeks before, so many passengers had to be refunded or their reservations were cancelled. The Etihad's stance on the matter was described as a result of their lack of interest to keep the New York line operational.

After Etihad Airways entered the major crisis in 2016-2017, which included bankruptcies of its other co-owned properties Alitalia and Air Berlin, aviation experts urged the government to take immediate measures regarding the management of Air Serbia. The contract allows for the Serbian management to step in after 5 years, on 31 December 2018. Etihad's management claimed it will step down on that day, but that didn't happen and their CEO Duncan Neysmith continued in office. The contract was then changed and since the Etihad hadn't notified the Serbian side of the discontinuation of their "managerial services" by 1 July 2018, their managing extended automatically for the next 5 years. The executive offices filled with Serbian representatives were occupied by the inexperienced people, anonymous in Serbian aviation. Economic journalist Miša Brkić said that the major problem of Air Serbia is that it operates with losses, the second most problematic issue is that it has been managed by the ignoramuses and third is that those ignoramuses know their inefficient blunders will always be covered by the state: "Serbia will continue to invest in the company, it will cover its losses and talk how it operates positively". By the mid-2018, out of the pompously announced strategic plans in 2013, "maybe 2% was achieved".

Due to the hardships, in February 2020 the Etihad announced partial selling of its fleet and plans on reducing its participation in subsidiaries. Serbian prime minister Ana Brnabić said that she doesn't expect this will affect Air Serbia, brushing off the reporters saying "I am president of the government, I am not director of Air Serbia". Over the years, officials, both the government and especially the company ones, were refusing the discuss or respond to almost any question, or simply ignored the press. Some of them even paid fines, as they are obliged by the law to disclose information since Air Serbia is still majority state-owned company. Instead, almost everything regarding the Air Serbia business was declared a secret.

Business
By 2018, Air Serbia was described as the "remaining, dragging tail of the failed strategy" of the Etihad Airways, developed by its former CEO James Hogan. His vision included unprecedented expansion of the company, including joining with the numerous, mostly European airlines (Jat Airways, Alitalia, Air Berlin, Darwin Airline, etc.). The strategy massively collapsed by 2017, forcing the Etihad to ditch Alitalia, Air Berlin and Darwin Airline, which all went up bankrupt, but also to ditch Hogan from his position, too. Analysts concluded that in such position, the Etihad will unlikely pour hundreds of millions of euros into Air Serbia. On the other hand, it was concluded that the Etihad most likely won't ditch Air Serbia as, not only that it is not losing money with it, it is actually earning money, regardless of Air Serbia's continuous business loss. As of April 2020, Air Serbia is the only European airline from which the Etihad didn't withdraw. Despite the Etihad converted its original, $40 million-heavy loan to Jat Airways into the 49% ownership in Air Serbia, it was estimated that in only three years, Air Serbia repaid that amount paying to the Etihad for "various services". From 2013-2016, for just one leased Airbus plane out of two, Air Serbia paid to the Etihad €10.4 million. The official papers show that Air Serbia earns €1 million yearly from the transactions with the Etihad, but pays €10 million for non-specified goods and services. Leasing planes within the same group or system is usual, as it reduces the costs but in this case, on average, everything that Air Serbia had to pay to the Etihad was more expensive than what was available on the free market.

The state decided to take all of Jat Airways debts on itself (a total of over €215 million), to make the situation clear for the new company, which is deemed as the "least troublesome decision" in the entire Air Serbia-Etihad Airways enterprise. Also, the state was to pay all debts from the transitional period of over 8 months (1 August 2013-26 April 2014; originally planned for 31 December 2013). Accelerating in the second half of 2013, Jat Airways amassed net loss of €73 million, ballooning from 2012 when the loss was €35 million. In this period, the Etihad's management already took over the company though official takeover was moved to April 2014, and the company was still called Jat Airways. Since the state obliged to pay the expenses, the management had no responsibility of covering the loss. With everything taken into account, only in 2013 Serbia invested three times more into the company than its "fifty-fifty" partner. As Aleksandar Vučić's liaison with the UAE investors, mayor of Belgrade Siniša Mali was the chief negotiator of the contract and was appointed to head the Supervising Board of Air Serbia. He later claimed that Jat Airways was on the verge of bankruptcy, without having money for basic needs, and that the Etihad helped by loaning $40 million cause the state had no money either. However, the inaugural flight of the rebranded company with the rented Airbus from Belgrade to Abu Dhabi occurred on 26 October 2013, while the loan was paid in four installments, with the first being only 5 days prior, which means that the Jat Airways, or the state, had to pay (21 October - $8 million, 30 October - $2 million, 18 November - $15 million, 16 December - $15 million). The line was disconnected due to the lack of profitability in October 2017.

Prior to the arrangement with the Etihad Airways, Jat Airways amassed an average €40 million of net loss per year. Siniša Mali claimed that "strategic partners will finance the company fifty-fifty" and the agreement stipulated that Etihad will invest "up to $100 million". The state directly subsidized Air Serbia with €69,32 million in 2014, €48,68 million in 2015 and €40,1 million in 2016, which is a total of €158,1 million. Furthermore, the state, which owns the Belgrade's Nikola Tesla Airport, decided not to claim debts made by Air Serbia for unpaid taxes, in the amount of €16,79 million in 2014 (old Jat Airways debts) and €19,26 million in 2015 (new Air Serbia debt). In total, the state subsidized the company with €194,15 million in three years. In the same period, Air Serbia reported net income of €7,4 million (in 2016 only €857,000) which means that without state help, the company had a total net loss of €186,75 million or €62,25 million yearly, which is over 50% more than Jat Airways prior to 2014. On 31 December 2016 the state subsidizing was to stop.

Etihad's investment was much lower, though it should be fifty-fifty. They actually never invested anything, but through their connected company "EA Partners", in two credit lines, loaned money to Air Serbia in the amount of $117.5 million with an interest rate of 7% yearly and growing 0.17% quarterly, plus additional $8 million of transaction fees. Such high interest rates and credit fees on the money loaned by the mother company points to the money draining. On 9 January 2017 the state also made a loan to Air Serbia, €14 million, with an interest rate of 3.5%. Air Serbia time deposited €79.2 million in several banks, with an interest rate of just 0.4 to 2.2%. In 2017 Air Serbia began drastic reduction of the costs. All branch offices in Serbia, outside Belgrade, were closed and 300 employees, out of 1,600 were fired or resigned, and 100 more were scheduled for further dismissal. Larger, comfortable seats in the planes were replaced with smaller, less comfortable ones, to increase the number of seats, and the catering was reduced. Rumors that Air Serbia will transform into the low-cost company or that it will leave its offices in Belville were refuted by the company. Despite the dire financial situation and huge amount of state money pouring into Air Serbia, on 28 July 2017 Mali said: "I think that from February of last year [2016], I think even from February of a year before [2015], we [Air Serbia] had no help from the Government of the Republic of Serbia, whatsoever. I am saying that Air Serbia is doing business in the open market". The only visible progress, compared to Jat Airways, was the increased number of passengers as being part of the Etihad Airways group expanded available markets, but that still didn't lift the company into the green, as the expenses increased, too. Reducing of the costs was confirmed by Mali, who called it a "normal process". Employees were fired just one day after Etihad Airways announced loss of $1.9 billion in 2016. Although claims that Air Serbia will be transformed into the low-cost company were rejected by the management, the Etihad issued guidelines of turning the company basically into the low-cost one in everything but the name. Some concluded that it might become some sort of the regular/low cost hybrid. From free catering, passengers now had to pay for the bottles of water.

From his new position of the Minister of Finance, Mali stated in July 2018 that "Air Serbia is the fastest growing company in the region" and "the kick starter of the entire Serbian economy". However, the report for 2017 showed that the government continued to pump money into the company even though the obligation expired. Reported net profit was €15.7 million, but €20.8 million were transferred to Air Serbia by the government which amounts to the net loss of €5.1 million, just as it would be in red in all 4 years since it was restructured. Broker Nenad Gujaničić expressed doubt that full state subsidies, direct or indirect, are higher than this. Economist Goran Radosavljević, former advisor and secretary in the Ministry of Finance estimated that the state pumped in "roughly €300-400 million" by the mid-2018. The 2017 loan from the state's Development Fund (€14 million), had an interest rate of 3,5% per year, which is just one half of what Etihad is calculating for their loans. Mali explained that €12 million were transferred to Air Serbia according to the government's "strategy of the development of tourism" which was adopted by the government at the end of 2016, right when the subsidizing was to stop. Additionally, government donated further €14 million to the company in November 2018: €11,7 million for covering the losses of the Belgrade-New York line in 2017 and  €2,3 million for fuel in 2018.

Adria Airways, the flag carrier of Slovenia, accused Serbian government of continued subsidizing of Air Serbia in 2019, which is against the Stabilisation and Association Agreement (SSP), which Serbia signed with the European Union on its way of becoming its member. The SSP forbids state help to the companies. Prime minister Brnabić rejected the accusations, claiming Serbia is not in the breach of SSP and that "Serbia will win". She accused the European Union of acting directly against free trade and the SSP. State media reported that European Commission has no jurisdiction over the matter anyway, as Serbia is only a membership candidate but the economists reminded that EU is controlling the application of the SSP. Some pointed out that every country deems it important to have its own flag carrier, even if they have to subsidize it, it is just a matter of how well they are hiding it, or if it is obvious like an "elephant in the glass shop". State refused to disclose documents on subsidizing, even to the pro-government newspapers. The only available document was from 2014 when the Commission for the Control of State Help allocated certain funds to the company.

The Etihad was the partial owner of the Jet Airways and acquired three landing slots at the Heathrow Airport, previously granted to the Jet. The Jet nevertheless declared bankruptcy in April 2019 and the next month the Etihad leased those slots to Air Serbia, until October. As the Heathrow slots are the costliest in the world, the analysts expected for the Etihad to sell them, not to lease them to its minority-owned subsidiary. In the same package was the lease of Airbus A320 with sub-standard number of seats (136). The plane was leased as the wet lease deal, which means the plane will fly with Etihad's visual identity and aircrew, while Air Serbia will pay the monthly rent, maintenance, insurance, lodging of the crew and flight hours overtime. Both companies refused to disclose the monetary side of the arrangement. Based on the available data, just the plane lease would result in the loss of €6-7 million quarterly, so the analysts concluded this was just one in the row of poorly analyzed and irrational business moves contrary to the goal of securing profitability of Air Serbia, or plain and simple robbery and money draining from the company.

Despite obligation of the state to fund the company expired in 2016, in the proposal of the 2020 budget, the government allocated funds for Air Serbia again, claiming it was the "fulfillment of the contract on establishing Air Serbia". During the state emergency, declared due to the coronavirus pandemic, Siniša Mali stated in April 2020 that the government will help certain state owned companies, "first and foremost, Air Serbia and Elektroprivreda Srbije, so that these companies could continue their growth and expansion". He continued his claims that Air Serbia is a profitable company (the only one in the region and one of the few in the world), adding: "That same airline, our, Serbian, brought back to us thousands of citizens who were scattered over the various parts of the world, to Serbia. It brought tens, hundreds of tons of medical material aid to Serbia. What would we do if he had no Air Serbia and if we listened to some who were saying - what do you need this for".

Monopoly
In October 2019 flight from Belgrade to Sydney, via Abu Dhabi, cost €1,586, however Etihad flights to the same destination from Frankfurt was €1,108, from Paris €1,031 and from London €937, even though all those cities are further from Sydney than Belgrade. Such overpricing was described as the evident result of Etihad's monopoly, especially taking in the account disparity in salaries in Serbia and Germany, France or United Kingdom. Serbian authorities also let the minority holder to operate flights to the Far East with numerous business and private flights between China and Serbia not being controlled by the Serbian part.

Air Serbia was the only bidder for the flights from the Niš Constantine the Great Airport in southern Serbia in 2019. Flights began on 15 July 2019, and there were 12 destinations in total which were declared by the governmet as the "lines of public importance". However, this was seen as continuation of both the monopoly and the subsidizing. Flights are subsidized to Air Serbia by the state in the amount of €15 million in the next three years, till 30 June 2021. In October 2019, the Civil Aviation Directorate of the Republic of Serbia rejected Ryanair's application for the Niš-Frankfurt line, so they switched to Banja Luka in Bosnia and Herzegovina instead. Ryanair directly accused the Directorate of succumbing to the Air Serbia's monopoly. Line from Niš to Budapest was discontinued after only three months, in October 2019.

Following the same pattern as for the Niš airport, the bidding was organized for the Morava Airport in western Serbia. State declared two lines (Morava-Vienna and seasonal Morava-Thessaloniki) as the lines of public interest. On 25 November 2019 the tender was won by Air Serbia, which was again the sole bidder. The compensation from the state was also secured for the next three years, in total amount of €5.63 million.

Fleet and personnel
Planes

In July 2018, Jat Airways' former executive director Velibor Slavuj, stated that Air Serbia basically doesn't exist anymore as it fully owned only 4 planes, 2 Boeing 737-300 and 2 ATR 72, with an average age of 30 years. One of the stipulations of the contract between Air Serbia and Etihad Airways was that fleet will be rejuvenated with 4 new Airbus planes by the end of 2018, and additional 6 by 2020. The purchase of the A320NEO planes was announced in 2013, with the total planned spending of almost $1 billion. Unlike domestic and Etihad officials, the Airbus responded to the inquiry of the Serbian reporters in the summer of 2018, saying that there are no plans to deliver planes to Air Serbia in 2018. It was later discovered that already sometimes in the winter of 2017/2018, the company backed off from this contract, with company scrapping plans to modernize the fleet altogether. Everything was done quietly, with company refusing to respond to any question regarding the issue.

The contract with Airbus was extension of the contract which Jat Airways made with Airbus in 1998 for 8 planes. Jat paid the deposit of $23.5 million. Despite the contract with Airbus included free training for 5 crews per plane, in 2013 while it was still Jat Airways and 100% in the state's ownership, the company decided to pay to the Etihad for the training. Pilots have been sent to the Etihad's Air Berlin subsidiary. Just for the training on one plane, Jat Airways paid over €10 million euros for 8 months. Air Serbia inherited the Airbus contract but in 2014 transferred it, with the deposit, to the Etihad, which was noted in the financial report. Siniša Mali said this was done so that Airbus wouldn't sue Air Serbia for "hundreds of millions euros". The Etihad was to successiveli return the deposit to Air Serbia as the planes are going to be delivered, while in turn Air Serbia was obliged to fully pay all the planes to the Etihad. In January 2019 it was announced by the Etihad that they canceled the purchase and that Airbus returned the deposit which was claimed to be returned to Air Serbia.

Aircrews

The company's internal investigation resulted in the report from 27 November 2017 which showed that in 2017, 12 pilots piloted Air Serbia's planes without obtaining security clearance neither from the Ministry of Interior nor from the Security Intelligence Agency. The report also concluded that 18% (or 101 person) of the Air Serbia's own aircrew has no security clearance. This would be enough for major fines and revoking of the company's flying permit. Civil Aviation Directorate was obliged to act upon obtaining this information, but they did nothing. The company hired pilots via the AviGo LTD. Etihad's senior vice president, Rick Allen, initially promised to explore the situation and to issue the official company statement on the matter, but instead replied with: "I will not comment anything more on this issue".

The AviGo LTD began working with Air Serbia in 2014, in direct negotiations, but it was almost impossible to find who are the owners and management of the company. This was a result of shutting down of Jat Airways', internationally esteemed, training school. At the time of shutting down, the school trained 100 pilots. The properly trained and experienced pilots were offered either to retire or to continue working on short-term contracts. In 2014-2017 Air Serbia hired a total of 56 pilots from AviGo LTD, which were young and inexperienced. Of those, 21 had to go through additional training first, before being able to pilot company's planes. The 2017 report also concluded that the number of pilots hired through AviGo LTD is excessive. Vladimir Nikolić, who was company's Director of Flight Affairs, and in charge of providing aircrew personnel, was also a hidden co-owner of the AvioGo LTD at the same time, which operated through Dominica-Bulgaria channels. Internal investigation showed conflict of interest already in 2015, but then CEO Dane Kondić dismissed it as no big deal. The 2017 investigation also pointed to the conflict of interest for the same matter.

Many transactions with AviGo LTD and their pilots were done without proper documentation and contracts and it was estimated that almost €4.4 million was drained this way out of Air Serbia. AviGo LTD pilots and co-pilots were advised to open accounts abroad, so that they wouldn't pay taxes in Serbia. Nikolić was fired, officially "because he didn't validate magnetic card when coming to work", while Kondić resigned a month after the report was announced, citing private reasons. Nikolić addressed the scandal claiming that nothing is true and that everything was legal. He stated he actually saved lots of money to the company, but that he was basically a victim because, among other reasons, he is young, successful and drives a good car.

Politics
Press

In December 2018, Air Serbia banned from its lounge at the Nikola Tesla Airport all magazines critical of Aleksandar Vučić's government. Representatives of the company claimed it was because "for years", they had no contracts with those publishers. Veljko Lalić, editor in chief of the Nedeljnik confirmed that their contract indeed expired, but in 2016. Dragoljub Žarković from the Vreme, on the other hand, said that this had nothing to do with the lack of contracts, labeling it as insolence and brown nosing towards the government.

However, the internal e-mail sent by the Air Serbia's on ground supervisor Milica Milaković clearly shows that the content of the magazines was the problem: "Colleagues, please pay attention to the newspapers which are in the lounge, so as to their content. All newspapers left behind by the guests remove immediately and don't place them on the display rack. Especially pay attention to NIN, VREME, NEDELJNIK and newspapers with similar content. Those, don't display at all." (names of the magazines capitalized by Milaković). The e-mail was authenticated by Air Serbia. In protest, journalists and activists personally distributed magazines (including the also banned daily newspaper Danas) in the airport hall and placed them on the Air Serbia's newspaper rack. Suzana Vasiljević, media adviser to president Vučić, is member of the Air Serbia's Supervising Board.

Krušik affair

In September 2019, the Krušik affair broke out, regarding the illegal weapon sales from the state-owned Krušik arms factory. An international investigative journalistic effort, it showed that the arms and ammunition produced in the factory ended up in the hands of ISIS fighters in Yemen, but also in other war zones where the weapons trade is forbidden, like Ukraine. Additional investigation in Serbia showed that Krušik sold merchandise via mediators, who were close friends or family members of president Vučić and his closest political ally, Interior Minister Nebojša Stefanović. This financially almost ruined the company but allowed for the massive enrichment of the mediators. Weapons were officially purchased by the companies from the United States, Saudi Arabia and the Emirates. The weapons were delivered to the Emirates, which is legal, but from there they were distributed into the war zones.

Marinika Tepić, parliamentary deputy of the opposition Party of Freedom and Justice, connected the Etihad Airways contract and illegal weapons trade. She pointed out to the unfavorable contract for the state and misuse of Jat Airways, the fact it was signed in Vučić's private house, the same mediators appearing in almost all Serbian-Emirati businesses like Belgrade Waterfront or selling arable land to the Emiratis (some of which are foreigners given Serbian citizenship, blacklisted weapons merchants or wanted by foreign countries) and unrecorded middle of the night flights from the Nikola Tesla Airport with unmarked planes, loaded with the crates wrapped in polyester or green cloth with Etihad's VIP stamps, concluding that the only reason for the entire deal was just to transform Jat Airways into one of the key European links in the illegal weapons trade chain. Planes flying during the night were previously noted by the citizens of Belgrade, while photos of unmarked planes on the runway leaked into the public.