The price of airline tickets in Armenia has gone up ever since Armavia Airlines stopped operating in the spring of 2013.
Employees of international carriers with offices in Yerevan find it more convenient to travel to Georgia by bus and to then hop a flight to Europe. It’s much cheaper this way.
Our research has led us to believe that Armenia’s General Department of Civil Aviation (GDCA) is the biggest impediment to the aviation sector in Armenia. When we point to the GDCA, we wish to single out its management and especially its chief, Artyom Movsesyan.
Armenian Prime Minister Tigran Sargsyan has recently stated that talks about reforming the sector have taken place on two occasions at the Presidential Palace during the past few months. As to what changes will be forthcoming remains to be seen. Suffice it to say that it all rests in the hands of one man; the president.
But reforms will not come easily as Artyom Movsesyan has turned the GDCA into a personal business venture which is run by his deputies.
State or Private Aviation?
As a result of the discussions organized by the government, the Public Council and the GDCA, with the participation of businessmen, NGOs and international organizations, the following three reform options were noted:
1 - Create anational carrier either wholly or jointly owned by the state.
2 - Immediately launch an “Open Skies” regiment.
3 - To create such a regiment in stages.
In the end, the last option was chosen.
The reasoning given was that the first option could have negative repercussions. The government would assume a heavy burden regarding the sponsoring of such a carrier and that it could negatively impact the competitive process. The opposition stated that international experience shows that government participation does not ensure profitability and that, on the contrary, such participation restricts competition and sector development. The conclusion reached by those opposed to the first option is that several governments have rejected the idea of creating a state-backed national carrier and have left the issue to the private sector.
Some experts like Shahen Petrosyan and Hakob Tchagharyan maintain that the right option is to have a state carrier. Their major concern is that in times of national emergency (war), private carriers may refuse to fly.
The “Open Skies” Agenda and What Hinders It
One employee of an international organization, who wished to remain anonymous, told Hetq that three steps must be taken to implement sector reform.
Armenia must first launch the “Open Skies” model, according to which any qualified operator can enter the market.
The second step would be to partition the GDCA into two or three bodies, given that it is bloated and performs several functions at once – issuance of licenses, oversight, etc.
Third, Armenia must sign a “Common Aviation Area” agreement with the European Union. When we asked if the “Open Sky” regiment doesn’t carry any risks and to what extent we can entrust the lives of passengers to non-professional Armenian operators, the employee said that this is the reason why it is so important to separate the licensing and oversight bodies.
Moving forward, we should note that Arman Khachatrian, Executive Director of Armenia’s National Competitiveness Foundation (ANCF), stated in an interview with MediaMax regarding reforms in the GDCA that for the program to succeed, “the reforms must be institutional.” He added that the need would arise to separate the functions of accident investigation, safety oversight, and policy and technical regulation. (The ANCF, at the instruction of Armenian President Sargsyan, has entered into an agreement with the U.S. based McKinsey company to draft a new strategy for the sector)
The reforms envisage that Armenia’s Ministry of the Economy will be given the responsibility of drafting policy, and that the ACB will be granted safety oversight authority.
According to the liberalization agenda (Open Skies) adopted by the government on June 6, the authorities in Armenia must negotiate in good faith, accept any sincere offer from any country, and thus strive to sign “Open Skies” agreements.
In other words, Armenia must seek new bilateral relations with aviation authorities of other countries. To accomplish this, the agenda envisages as a first step that the Armenian government immediately starts negotiations to enter the overall aviation space of the EU. There is no clause in the agenda that would hinder the negotiations process with the EU regarding a common airspace agreement or the negotiating position of Armenia regarding adopting other international documents leading to a liberalization of air carriers.
Yes, it is stressed that the agenda cannot hinder negotiations with the EU, but could the drafters of the agenda have known that just two months later, on September 3, President Sargsyan would declare his intention to join the Customs Union? Such a move cannot but have an impact on Armenia-EU relations. Now, Armenia’s entry into the Single European Sky initiative is dependent on the developments that will take place in Vilnius and the interest the EU will have on deepening links with Armenia. Nevertheless, at an October 23 cabinet session, Prime Minister Tigran Sargsyan reiterated the importance of implementing the “open skies” agenda. Of interest is what will be the fate of the first agreement with the EU serving as a first step towards such implementation.
Will the “3 Aviation Groups, 3 Officials” Option Come to Pass?
As noted, the agenda adopted by the government envisages the liberalization of the Armenian skies in stages. The agenda notes that when necessary, flight groups can be singled out. In the beginning, it was decided to separate the air routes into three groups/directions and to allocate them to three local operators by competitive bid. These groups are: the CIS, Europe, and the Middle East. Out of all of the, the most profitable will be flights to Moscow.
Hetq has already written about the three companies that have close links with top officials at the GDCA and which can be the winners of the three groups in the planned for November bid, especially since their representatives don’t conceal their ambitions.
Here, we are talking about Atlantis European Airways, Air Armenia, and Armenia Airways.
It was likely that the European direction would be given to Atlantis, which today operates flights via Austrian and Czech airlines to Vienna and Prague and from there internationally. The principal shareholder of the company is Aram Marutyan, Deputy Head of the GDCA.
Air Armenia was the favorite to win the CIS direction. In July, the GDCA gave a temporary license to the company to operate flights to Moscow, Saint Petersburg, Sochi, Rostov, Krasnodar and Samara.
This vacuum was created after Armavia, the sole national carrier, left the sector. As a result, large numbers of Armenian passengers flying to Russia were forced to use foreign companies. However, the first flight planned for the middle of August was constantly postponed since the company had a problem with the plane it had leased. Air Armenia finally started Yerevan-Moscow flights on October 27 and will serve the other five locales in the future.
The owners of Air Armenia are Republican Party MP Vahan Harutyunyan (and brother of the former Minister of Justice Davit Harutyunyan), and Arsen Avetisyan, Executive Director of the former state-owned Armenian Airways.
Armenia Airways, the third newcomer noted in our previous article, would have likely received the Middle East grouping which is not as profitable when compared to the other two. One of the owners is Karen Movsisyan, the nephew of GDCA Head Artyom Movsesyan.
ANCF Executive Director Khachatrian however noted that there couldn’t be a restriction on the number of local operators.
“There have been discussions and the plan was for those companies to be chosen on a competition basis. But within the scope of the new program, an open and liberal sector was envisaged, without a restriction on the number of local companies. The effectiveness of the services to be provided by these companies must be based on specific and measurable criteria, as well as on the existence of an executive program corresponding to international standards.”
As to the current state of reforms, Khachatrian noted: “Reforms will be implemented in parallel and consecutive stages. It will take two years for full implementation. A working group is now being formed that will undertake serious work. We are very pleased that the private sector has extended a helping hand to the Armenian government for the project’s implementation. This inspires confidence that it will be successful. I cannot note specific deadlines, but the approach is as follows; the quicker the better.”
We will have to wait one or two years to see what reforms will occur within and without the GDCA, what the Armenia “open” sky will look like, and who will be operating it. We will then see what benefits this much debated agenda has given us. To implement it, what are needed are specific reforms actions, and drastic ones, starting right now.
"Classic racket or office" as a way to advance one’s private business
Let’s now give specific examples regarding how business is developing within the GDCA. As noted, GDCA Deputy Head Aram Marutyan is the principal owner of Atlantis European Airways. The Austrian-based travel agency Saturn Reisebuero owns 10% of the company and Atlantis Group the other 90%. Of this 90%, 48% is owned by Saturn, 32% by Armenian citizen Spartak Gishyan, and 10% each by Suren Avagyan and Rolland Margaryan (the director of Atlantis).
Saturn is registered in Vienna. The sole shareholder of Saturn Reisebüro GmbH is Atlantis Viaggio GmbH, a company registered at the same Vienna address; Barichgasse 29/1. The 100% shareholder of Atlantis Viaggio is Aram Marutyan. Edward Farnkulyan is the director of Saturn, while the director of Atlantis Viaggio is Karine Marutyan, wife of Aram Marutyan.
The Atlantis European Airways website notes that it operates flights from Yerevan to Vienna and Prague jointly with Austrian and Czech airlines and from there to other international destinations. In this case, “operating joint flights” means that the Armenian party sells tickets. This activity is better known as a code-share agreement when two or more companies enter into an agreement in which one of the parties operates the flight under its name and the others merely sells tickets. Seats on the plane are distributed to the cooperating parties.
I telephoned Atlantis European Airways and Atlantis Tour-4+1 (both have the same number), and said I wanted to buy a ticket. The clerk said that they do not have airplanes and that flights are operated by Austrian and Czech airlines. She added that their tickets are cheaper, on average, than those sold by the operators.
Hetq’s government source said that 10-15% of the seats on Austrian and Czech Airlines’ flights are freely allocated to Atlantis European Airways. Our source says the two prominent European carriers have done so to curry favor with the GDCA and for permission to fly to Yerevan. But since these seats don’t generate income for the operators, they must raise ticket prices to make up the difference. In the end, the average passenger suffers.
Our source also claims that GDCA officials also receive monthly payments from Russian operators in return for favors and licenses. This is a classic example of a business racket.
Lucas Negedli, who heads the Austrian Airlines office in Yerevan, informed us that we should forward all such questions to the main office in Vienna, to the attention of Director External Communications
Patricia Strampfer. The Vienna office affirmed that they had received our inquiry, but to date, we haven’t heard back from them.
Artur Babayan, who runs Czech Tours in Yerevan, the main agency for Czech Airlines, confirmed a portion of our information, but rejected the claim that some seats were allocated for free.
“A code-share agreement was signed about eight years ago for ten seats. But they aren’t given to Atlantis for free. I can’t say what the proportion (i.e., the revenue to Czech Airlines from the seats sold by Atlantis-VS) is, since the agreement was made directly with the Prague office. What I can say is that the seats aren’t allocated for free and that Atlantis pays for them. I can assure you of this,” Babayan said.
Then, referring to the fact that Atlantis prices are generally cheaper, Babayan added, “The fares of Atlantis and Czech Airlines are practically the same and are slightly dependent on the season. But their tariff schedule and ours are almost identically composed. Theirs would be cheaper only if, as you state, the seats are given for free. I believe that the code-share agreement stipulates that the tariff policy must be the same. When Czech Airlines promotes specials, naturally, our prices are cheaper. Atlantis can sell tickets cheaper than the fixed price, but it would be operating at a loss. But they can’t sell them at more expensive prices either, firstly because there is an agreement, and secondly, because it wouldn’t make sense. There is not set maximum price, but it would be illogical for them to sell more expensive tickets. Czech Airlines tickets are sold throughout Armenia via a network of agencies and sub-agencies, and they all see the same prices as set in the Amadeus system.
What planes does Atlantis operate?
There are only tourism related offers on the Atlantis Tour Facebook page and no information regarding Atlantis European Airways flights or its fleet. We were not able to find any information on the company’s airplanes either at atlantis.am or in other aviation references. However, A. Marutyan has provided the GDCA with an airplane operator’s affidavit. In response to our inquiry, GDCA Chief of Staff Sahak Hakobyan said that the affidavit was issued on February 20, 2012 and is in force until the same day in 2014. According to Hakobyan, the company operates “An-12” (EK-12945) and “A320” (EK-32008) type airplanes.
The EK-32008 over Domodedova Airport (February 6, 2012)
There is no information in any aviation reference regarding the EK-12945 registered airplane. As to the EK-32008 numbered Airbus (A320-211), the references say that it is registered to Armavia. This airplane, which bears the name of composer Aram Khachatrian, according to planefinder.net, last flew on August 19, 2012, from Yerevan to Domodedova Airport in Moscow and back. It is now parked at Zvartnots Airport in Yerevan. The plane was built in 1991. It was formerly operated by Austrian and American companies. It was registered as part of the Armavia fleet on July 31, 2003, in Armenia, receiving the EK-32008 number. Armavia operated it on a lease basis. The owner of the plane is the American “CIT Leasing Corporation”.
Who is Aram Marutyan?
41 year-old Aram Marutyan is from the town of Sevan, in Armenia. He received a Masters from Yerevan’s University of Economics in 1994. He served in the Armenian Army from 1994 to 1996. He was the commercial director of Armenian Airlines from 2001 to 2003. In 2003, this company went bankrupt and the aviation market in Armenia was divided between Mikhail Baghdasaryan’s Armavia and Gagik Tsarukyan’s Armenian International Airlines. Marutyan has served as the GDCA Deputy Director since 2007. He is a PhD candidate and a member of Russia’s Academy of Sciences. Marutyan has served as Armenia’s Honorary Consul to Austria since 2011.
Marutyan’s companies are held by Atlantis Holdings. He has successfully coordinated his aviation and tourism business in tandem with his post at the GDCA. The profitable relations that Atlantis European Airways, which doesn’t operate its own flights, has cemented with Austrian Airlines and Czech Airlines, can serve as a successful business model for other airlines around the world now in crisis.
What us the reason for Artyom Movsesyan’s longevity?
The head of Armenia’s GDCA is both an electronic engineer and a lawyer. He’s been a government official since 1990, especially in the agriculture sector and tax department. From 1996 to 2004, Movsesyan worked at the Presidential Palace, at various posts in the Presidential Oversight Service. He was appointed Head of the General Department of Civil Aviation in 2004 and has been at the job ever since. We should note the Prime Minister is responsible for appointing and dismissing the chief of the GDCA as well as deputy chiefs (in consultation with the chief).
Movsesyan has maintained cool relations with government leaders, both past and present. However, by forming an entourage in the government to advance his business, Movsesyan and others are serious impediments to the development of Armenian aviation at this stage. If this current opportunity to liberalize the sector is missed, then there will be a new, and even more painful, retreat than witnessed in 2003.