2018 has already seen several European airlines go bust, including Skywork, VLM, Azur Air and most notably Primera Air.
Another airline to cease operations was Cyprus based Cobalt.
I flew Cobalt a year ago from Larnaca to Brussels, and it was a great experience, but in hindsight what made it so good may have contributed to the reasons it was ultimately not successful financially. We booked the flight only a few weeks in advance, and an economy fare was only around US$100 one way which was exceptional value for what was a ~4.5 hour flight.
For a low cost carrier I remember there was both a large business class cabin (for a narrow body plane), and I had never seen so much hand luggage allowed on board — several (economy) customers brought four pieces each, and crew did not say anything. Fortunately the flight was not full so there was actually room for all of it.
Cobalt flew to London Heathrow daily before they ceased operations. This was, in hindsight probably another unwise financial decision for a low cost carrier — London Heathrow slots are amongst the most expensive in the world. Cobalt also flew to London Gatwick and Stansted. For an airline with only six aircraft in its fleet, flying to three London airports did seem unusual!
Virgin Atlantic
So how did Cobalt secure a valuable Heathrow landing slot pair? They leased it from Virgin Atlantic, which I believe holds the second most slots (behind British Airways). This is why they were operating from Heathrow Terminal 3, which is where Virgin Atlantic is also based.
The two airlines did not have any relationship, beyond Virgin leasing the slot pair to Cobalt.
When Cobalt ceased operations last month, their air operators certificate, and operating license were revoked by the Cyprus Transport Ministry. Cobalt still held the Heathrow slot pair, but was not using it.
So Virgin Atlantic then went to an Administrative Court in Cyprus (where Cobalt is based, and registered) to seek an injunction to suspend the revocation of Cobalt’s operating license until Cobalt could transfer the slot pair back to Virgin Atlantic.
Virgin obtained an interim injunction on Friday (November 9) with the case being adjourned to the following Monday for the parties to provide further arguments for the court to make a final decision. First thing Monday, Virgin withdrew their injunction application announcing that they no longer required Cobalt to hold an operating license. The license was then revoked again.
Cobalt remains without the necessary certificates or license to operate, as it did before the injunction application.
I haven’t been able to track down the injunction transcript, and I assume it would be in Cypriot Greek or Cypriot Turkish (if anyone can find an English version I’d love to read it), and the lease agreement is confidential. It has been a decade since I’ve practiced insolvency law, and I didn’t specialize in Cypriot aviation (!), but reading between the lines here I would guess that:
- The lease agreement for the slot pair would have had a clause in it regarding what happens to the slot pair if Cobalt ceased operating.
- While both parties may have agreed that the lease would transfer back to Virgin Atlantic upon the occurrence of an event such as insolvency, ceasing operations or losing an operating license (as Cobalt did not own the slot, they were leasing it from Virgin Atlantic), Cobalt may not have had the legal capacity to be able to transfer the slot back to Virgin without an operating license. They may have also refused to transfer it back to Virgin Atlantic, perhaps if the board believed there was a chance the airline would fly again.
- The lease agreement would be governed by UK law (being where Virgin Atlantic, the lessor was based and registered), while whatever happens to the assets of Cobalt would be governed by Cyprus law, meaning it would take quite some time for the lease ‘asset’ to eventually be transferred back to Virgin Atlantic in an insolvency/administration situation. Airberlin’s insolvency took many months, for example.
- Virgin Atlantic and Cobalt came to an agreement over the weekend following the interim injunction, signed the necessary paperwork and the slot pair was swiftly transferred back to Virgin Atlantic.
So, why the urgency?
Given Cobalt only ceased operations last month, this was fast work for Virgin Atlantic to seek an injunction in a foreign court. There are a few reasons for this:
- While Cobalt is not operating but still hold the lease to the slot pair, no one is using that valuable slot pair, so it would be more financially beneficial for either Virgin Atlantic to use it, or for them to lease it to another airline
- Heathrow Airport has a condition that each slot pair must be used, or the airline holding the slot pair will lose the right to operate it, so it is in Virgin Atlantic’s best interest to have someone using the slot pair, or else they, as the official owner of the slot pair would lose it (and the right to lease it to another airline).
Bottom line
Early media reports suggested Virgin Atlantic may be Cobalt’s ‘white knight’ who would save them by reinstating their operating license and allowing them more time to find additional funding to keep the airline alive.
But the fact that Virgin Atlantic would withdraw their injunction application the next business day after they obtained it, suggests the only interest they had in Cobalt was getting their slot pair back as quickly as legally possible.
It is a shame Cobalt failed, but this footnote is an interesting insight into just how valuable those Heathrow slots are.
Who do you think will receive Virgin Atlantic’s Heathrow slot pair? Will they use it themselves?
(Tip of the hat to Head For Points)
Why does Virgin not utilise the slot itself and provide flight to Cy ..... ?
Why don't virgin themselves operate the slots and fly to LCA ?
@ Sue Salter - Virgin can use their slot from Heathrow to fly anywhere (it's not a specific London to Larnaca requirement) so will probably use the slot to fly to a more profitable destination like perhaps increasing frequency to New York.
Cypriot is not a language but a dialect of Greek influenced by many of the past occupiers of the island... Romans, Phoenicians, Persians, Ottomans, British...
The language used is Greek.
Official documents, such as passports and ID cards, are in Greek, Turkish and English!
I sometimes wonder why grown ups choose to behave like high school students...
There are two official languages in the Republic of Cyprus - Greek and Turkish. All/most of government documents are in those two languages, so are passports (plus English) and so were Cypriot pounds before they were replaced by Euro. It is unlikely though that a court ruling on this matter will be in Greek AND Turkish. Most likely in Greek and English....
I sometimes wonder why grown ups choose to behave like high school students...
There are two official languages in the Republic of Cyprus - Greek and Turkish. All/most of government documents are in those two languages, so are passports (plus English) and so were Cypriot pounds before they were replaced by Euro. It is unlikely though that a court ruling on this matter will be in Greek AND Turkish. Most likely in Greek and English.
Those arguing about the existence of the Cypriot Greek language, should look up the difference between a language and a vernacular. Yes, Greek speaking Cypriots speak differently than Greeks proper. No, they don't speak a different language.
Callum, I had meant to say there is no such a thing as a written Cypriot Greek LANGUAGE. Of course Greeks from Cyprus are different from Greeks from Greece and yes, they might speak differently but they still write in the SAME language. I speak Greek, I've been to Cyprus AND my mother tongue is Spanish, so let me enlighten you and tell you that contracts are not written in Mexican, Chilean, Argentinan, etc -...
Callum, I had meant to say there is no such a thing as a written Cypriot Greek LANGUAGE. Of course Greeks from Cyprus are different from Greeks from Greece and yes, they might speak differently but they still write in the SAME language. I speak Greek, I've been to Cyprus AND my mother tongue is Spanish, so let me enlighten you and tell you that contracts are not written in Mexican, Chilean, Argentinan, etc - Spanish, they're only written in SPANISH, period, in the same way as contracts in Greek are written in only one standard Greek language, unlike for example contracts written in Portuguese from Brazil or Portugal. You really picked the wrong guy to argue over a typo... Your monolingualism has a solution though, it is called education!!!!
@VT-CIE: No it isn’t. There are parts that are British sovereign bases but it is its own sovereign nation.
Some time on Wikipedia might help.
It would definitely be in Greek. There’s no way an official document in Cyprus, rather than The Part Of Cyprus Not Under The Effective Control Of The Cypriot Government, would be in Turkish.
@Phillip: You're right. Cyprus was an English territory, which explains why (shockingly enough for that region) it is right-hand-drive.
@James: Azur Air (the Russian one) is very much alive and kicking. It is its German subsidiary that shut down.
Jamie - it’s quite common to lease a slot you own to another airline if you have no current plans to use it because it doesn’t fit your schedule - you’ll be getting money for it without the hassle of flying passengers!
If VS didn’t either lease it out for use or use it themselves they would soon fall foul of the 80-20 rule and have it taken away from them and they would lose...
Jamie - it’s quite common to lease a slot you own to another airline if you have no current plans to use it because it doesn’t fit your schedule - you’ll be getting money for it without the hassle of flying passengers!
If VS didn’t either lease it out for use or use it themselves they would soon fall foul of the 80-20 rule and have it taken away from them and they would lose a valuable asset (and be the laughing stock of the airline world for giving up a LHR slot pair for free).
As I said earlier VS will be looking to use the slot themselves or lease it but they are on a tight timetable because of the 80-20 rule. They could even fly some ghost flights just to maintain the slot pairs which BA have been know to do in th past.
Scandito - there IS such a thing as a Greek Cypriot. You may not like the term, but it certainly exists (and all my southern Cypriot friends use the term to describe themselves).
Mexican Spanish is also a thing... Just like American English is.
For someone as arrogant as yourself, you have a very poor grasp on global affairs.
@Neil.. I was thinking the same thing. I was like... When did Azul collapse.. lol. Still needs editing in the blog post.
Nicosia lies within the only internationally recognised part of Cyprus, and a contract from the occupied part of it, if such a thing exists, would only be enforceable by the occupier, Turkey. Plus, there is not such a thing as a Cyprus Greek, that's like saying contracts in Mexico are written in Mexican a Spanish... for someone who travels as much as you do, you show a very poor knowledge of global affairs.
@ Scanditino - the vernacular language the majority of people in Cyprus speak is Cypriot Greek.
Why would virgin lease the slot in the first place ?
I'm sorry, I may be confused but isn't Azul Air Brazilian? Also, if I'm not wrong, they're doing pretty well financially.
Although Cobalt started off as a low cost carrier, a few management changes later and they became a fuller service airline with plans to expand into long haul.
As for the London traffic, flying to three airports is not at all unsurprising for a Cypriot airline! Between the thousands of students, ex pats and tourists, those routes would have all easily been filled. There are Cypriot communities all across/around London as well as the...
Although Cobalt started off as a low cost carrier, a few management changes later and they became a fuller service airline with plans to expand into long haul.
As for the London traffic, flying to three airports is not at all unsurprising for a Cypriot airline! Between the thousands of students, ex pats and tourists, those routes would have all easily been filled. There are Cypriot communities all across/around London as well as the rest of the U.K. BA has now added a third flight from Heathrow to Larnaca, in addition to the Gatwick routes to both Larnaca and Paphos. They are easy routes to fill and you will find many people paying the extortionate £700+ fares to fly Business.
The relationship between Virgin and Cobalt may go back to the original Cyprus Airways days when they had codeshare agreements across the Atlantic. That said, the vast majority of Cobalt’s foreign investment was Chinese.
The transcript will be in Greek (the official language of the legally recognised state of Cyprus) and English. The courts follow English law, with Cyprus having been part of the British Empire in the past!
There is nothing unique about Heathrow's "use it or lose it" regulations. It is the standard 80/20 regulation in place at all slot controlled airports and draws from IATA WSG.
I think you meant Azur Air, not Azul Air (Azul Linhas Aereas is an airline based in Brazil).
Henry - you are very confused
VS already owned the LHR slot.
Cobalt therefore couldn’t monetarise it in any way shape or form or even sell it back to the people who already owned it ie VS.
It was also a slot VS weren’t using hence the lease. It won’t affect other VS routes or operations other than they now need to decide to use the slot themselves (and if so on what route) or lease it to another operator.
Cobalt are from the Greek side.. they would NOT be in a court with Turkish documents. 0% chance of that.
@ Richard - I did not want to make any presumptions about Nicosia!
didn't know you are a lawyer! good to know! my guess is they got the slot back, as you said.
I doubt Virgin will do anything for Cobalt. This also shows just how globalized the industry is: one of the reasons Cobalt failed was the new restrictions on foreign investments in China, where its main investors were from. This then snowballed to affect Cyprus, Great Britain and who know who else.
It is a shame though, since Cobalt was a nice airline and, at least not on surface, nowhere near as corrupt as the old Cyprus Airways.
Great summary, James. And given the opaque and generally tawdry nature of legal proceedings in Cyprus one imagines there will be much back-room dealing and exciting "friendly" payouts on the table.
the weirder thing was if Cobalt were already in financial distress to begin with, why not fully monetize their slot holding and convert from a lease to a full sale to VS , and at least get a good chunk of cash that would keep them alive for a short while ?
now VS is forced to scramble in court while getting things done after going into administration is always a major PITA, because everyone...
the weirder thing was if Cobalt were already in financial distress to begin with, why not fully monetize their slot holding and convert from a lease to a full sale to VS , and at least get a good chunk of cash that would keep them alive for a short while ?
now VS is forced to scramble in court while getting things done after going into administration is always a major PITA, because everyone now has a say regarding who gets what and why dealing with VS has priority over others etc.
And knowing who owns 49% of VS, if VS is forced to suspend routes as a result of the delay, it would be anything but one that impacts the JV.