One airline fights to retain pre-eminence in Ukraine

The raid came a month after the airline reportedly refused to provide documents to investigators.

According to bureau spokesperson Dariya Manzhura, investigators were alerted last year to potential wrongdoing of the state aviation regulator by the Association of Airlines in Ukraine. The association alleged that the regulator was lobbying on behalf of one particular airline and pointed to the non-payment of passenger fees by Ukraine International Airlines.

In 2014, as the hryvnia crashed, the airline stopped paying the $2 per passenger fee, which is pegged to the dollar. The fees contribute to a special fund within the state budget used to finance the State Aviation Services. In some countries the fees are up to $18 per passenger, according to Kyiv-based aviation lawyer and expert Andriy Guck.

The airline says that the State Aviation Service has no right to levy what they consider a tax, as this power is vested only in the Cabinet of Ministers. Furthermore, they say, the fee is not included in the tax code. They also allege that the investigation by the Anti-Corruption Bureau is intended to pressure the airline into “abandoning their legal position and paying the fees.”

While the State Aviation Service bills airlines based on numbers of passengers from the airlines every month, Ukraine’s Anti-Corruption Bureau claims the service’s former head, Denys Antonyuk, wasn’t particularly concerned by Ukraine International Airline’s lack of payment. Antonyuk was forced to resign in September 2015 and is under investigation.

From January 2014 to December 2015, the bureau says the airline collected the $2 per passenger fee as a surcharge on tickets, but failed to pass the money to the state budget. The company owes $6 million to the state budget.

In 2015, the airline and Ukrainian prosecutors launched parallel opposing court cases (one in the Administrative Court and the other in the Commercial Court) regarding the fees. Both of them won their cases, leaving the issue in legal deadlock.

“The prosecutor had to do it because the State Aviation Service at the time didn’t want to,” Guck told the Kyiv Post. “The strange thing is that UIA was so confident it was going to win that they just didn’t pay the fees.”

In January, the cases were reviewed by Ukraine’s High Court, which cancelled both decisions. The legal process will now start anew, but this time a single case on the issue will be heard in the Administrative Court.

Since March, Ukraine International Airline has neither been collecting nor paying passenger fees, president Yuriy Myroshnykov told journalists on May 30. But there is currently no court ruling which upholds their decision not to collect and pay the fee.

The new leadership of the State Aviation Service introduced a decree on May 17 designed to open up the market and pressure Ukraine International Airlnes into paying up. Foreign and domestic players have long complained about the difficulty of increasing their market share in Ukraine. Ukraine International Airlines operates at least 50 percent of domestic routes, according to Oleh Marchenko, a lawyer at Marchenko Danevych, a firm that advises airline companies.

A week after its introduction, Ukraine International Airlines filed a case against the decree. The court ruled that the decree won’t apply until the case is considered.

The decree abolishes what many other airliners considered to be discriminatory regulations introduced by Antonyuk that made it difficult to obtain the rights to fly to new destinations. Previously, in order to gain the rights, an airline had to be owned by a Ukrainian citizen and had to fly domestically for a year before being able to fly internationally.

With the new decree, airlines will not be able to gain the rights to fly to new destinations or increase their number of flights if they fail to pay passenger fees.

Guck says the new leadership at the State Aviation Service and the bureau are acting correctly, but the regulator, in particular, could still be harsher toward Ukraine International Airlines. For instance, they could refuse to issue them required certificates and stop providing services.

The case against Antonyuk could be pivotal for the airline’s future: According to Guck, if it is ruled that Antonyuk acted criminally, this will have a significant impact on the outcome of the cases on passenger fees and the new decree.

Kyiv Post staff writer Ilya Timtchenko contributed to this story.