VZCZCXYZ0000
RR RUEHWEB

DE RUEHBW #1136/01 2780724
ZNR UUUUU ZZH
R 050723Z OCT 09
FM AMEMBASSY BELGRADE
TO RUEHC/SECSTATE WASHDC 0264
INFO EUROPEAN POLITICAL COLLECTIVE
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RHMFISS/HQ USEUCOM VAIHINGEN GE
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK

UNCLAS BELGRADE 001136 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EAIR EINV SR
SUBJECT: SERBIA: JAT STRIKE ENDS, FOR NOW 
 
REF: BELGRADE 1126; BELGRADE 751 
 
SUMMARY 
------- 
 
 
¶1. (SBU) Flights of JAT Airways, the Serbian flag carrier, were 
grounded between September 30 and October 2 due to a strike by 
mechanics at JAT Tehnika, the former maintenance arm of the 
effectively bankrupt national airline.  The cause of the strike was 
unpaid debts between the two state companies and a move by the 
airline to in-source its line maintenance, undercutting JAT 
Tehnika's independent operation.  A temporary solution ended the 
strike for now, but government incompetence and political games 
offer little hope for a permanent solution to the airline's 
lingering financial problems.  End Summary. 
 
 
 
JAT Temporarily Grounded 
 
------------------------- 
 
 
 
¶2. (SBU) All JAT flights from Belgrade's Nikola Tesla airport were 
grounded between September 30 and October 2 after JAT Tehnika, the 
state-owned aircraft maintenance company, refused to service the 
airline's planes over JAT's unpaid debts to Tehnika totaling $1.6 
million dollars.  The two companies have been in talks this week 
with Infrastructure Minister Milutin Mrkonjic (Socialist Party - 
SPS) to solve the debt problem, but no long-term solution had been 
reached.  The strike ended at 11:00 a.m. local time on October 2, 
local media reported and airport operations personnel confirmed for 
us that JAT flights had resumed on Friday afternoon.  JAT Tehnika 
executive director Vladan Krunic said that the government had 
agreed on October 2 to pay half of the airline's outstanding debt 
to JAT Tehnika by October 5 directly from the state budget. 
Krunic said that the strike would continue on October 5 if the 
payment was not made as agreed.  The airline reportedly lost almost 
over $3 million dollars during the three day shut down.  A meeting 
of Prime Minister Cvetkovic, Infrastructure Minister Mrkonjic and 
the general directors of both companies scheduled for October 2 to 
permanently resolve the companies' problems was postponed until 
next week. 
 
 
 
Aborted Privatizations 
 
---------------------- 
 
 
 
¶3.  (SBU) JAT Airways and JAT Tehnika (the former maintenance arm 
of the airline, spun off in 2005) were both scheduled to be 
privatized in 2008, but both plans stalled and have not been 
revived.  Jat Tehnika has fared better than its former parent, 
diversifying its revenue base from a near total dependence on the 
state carrier (75% of its business in 2006) to just under 50% of 
total business this year, Krunic, told us on October 1.  JAT 
Tehnika currently provides all maintenance for JAT's fleet of 16 
planes. 
 
 
 
¶4.  (SBU) JAT Airlines itself is essentially bankrupt, with an 
estimated debt of $325 million and continues to lose money at a 
rapid pace (an estimated $45 million in the first nine months of 
2009).  JAT Airways submitted a turnaround plan to the government 
in late September 2009, which called for increasing annual 
passenger numbers through better customer service and more flights, 
joining an alliance with other major airlines such as the Star 
Alliance, and in-sourcing most of its airplane maintenance.  This 
turnaround plan was submitted to the government after the two 
companies signed a new maintenance agreement in August.  (Note: JAT 
Airlines was unwilling to talk with us about the current situation. 
End Note.) 
 
 
 
JAT and Tehnika's Growing Feud 
 
------------------------------ 
 
¶5. (SBU) The immediate cause for the strike was that JAT had not 
paid its debts to JAT Tehnika since August and JAT Tehnika workers' 
wages were two months in arrears because of this shortfall, Krunic 
told us.  Krunic said that the strike was symptomatic of deeper 
problems between the two companies, adding that JAT's plans to 
in-source line maintenance of its planes would effectively end JAT 
Tehnika's ability to operate as an independent company.  He said 
that JAT Tehnika wanted to remain independent and would not allow 
itself to be pulled back under the air carrier. 
 
 
 
Government Inept 
 
---------------- 
 
 
 
¶6.  (SBU) Krunic also expressed disgust at the role of politicians 
in the government in the relationship between the two companies, 
especially Infrastructure Minister Mrkonjic.  He said that Mrkonjic 
had first promised on September 24 that JAT Tehnika workers would 
be paid the next day.  After they were not, Mrkonjic ignored a 
warning strike from the company and finally responded to calls from 
the company almost a week later, blaming problems with transferring 
such a large amount of money in two days and saying he needed 
permission from Prime Minister Cvetkovic before he could do 
anything further.  Krunic also said that JAT Tehnika was willing to 
reduce the airline's debts and to pay salaries to only 700 workers, 
adding that 300 of Tehnika's workers were about to be laid off, 
with the government promising to pay for their severance  packages 
and other costs. 
 
 
 
Union Frustrated 
 
---------------- 
 
 
 
¶7. (SBU) Miroslav Mijailovic, the president of the trade union 
Nezavisnost, which represents many of the workers in JAT airlines 
and JAT Tehnika, told us on October 2 that former JAT managers and 
former and current government ministers bore responsibility for the 
airline's collapse and that the strike was about "social issues" 
such as pay and preserving jobs.  He accused Minister Mrkonjic of 
arrogantly making promises he could not keep and then later calling 
in others in the government to solve the problem.  Mijailovic cast 
doubt on JAT's plans to in-source its line maintenance and turn 
over hard maintenance for its planes to a third party, saying he 
there was currently no company in Serbia other than JAT Tehnika 
that could complete the work.  Mijailovic said although he had not 
seen the airline's turnaround plan, he did not think it had been 
approved by JAT's Managing Board.  Mijailovic said sources within 
Infrastructure Ministry had called the plan "worthless". 
 
 
 
¶8.  (SBU) Radomir Markovic, former general director of JAT, told us 
on October 2 that incompetent political party hacks were running 
both JAT and JAT Tehnika.  Markovic said he expected future 
problems if the current management remained.  Aleksandar Vasovic, a 
a journalist close to the SPS, told us on October 2 that Mrkonjic 
was not happy with the work of the current director of JAT Tehnika, 
Srdjan Miskovic.  Miskovic was appointed by SPS in December 2008 
and since then Tehnika had performed poorly, Vasovic said.  Vasovic 
suggested that Tehnika could be remerged with JAT in order to 
improve its financial viability. 
 
 
 
COMMENT 
 
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¶9.  (SBU) The situation at JAT Airways is a disaster and another 
example of incompetence and a far too common subordination of 
rational business planning to political gamesmanship within Serbian 
state companies and ministries.  Although planes are flying again, 
 
the measures taken to end the strike are temporary at best, and do 
not begin to solve the deeper problems between the two companies or 
address the difficulties of the bankrupt airline.  The airline's 
situation will continue to deteriorate, especially when Serbia 
begins to implement the open skies agreement it signed with the EU, 
which could lead to serious market pressure on JAT from new 
airlines. 
 
 
 
BRUSH 
BRUSH