The violent disintegration of Yugoslavia has halved the domestic population served by JAT to 12 million. While the carrier has retained its entire fleet of 30 aircraft, war and sanctions have whittled down the number of staff from more than 10,000 to about 6,000. The company has also officially changed hands. Once a public enterprise owned by all six former republics, in 1992 nearly all JAT's assets, valued at about $960 million, became the sole property of the government of Serbia. Yugoslavia's former republics own only the infrastructure and equipment found at their airports.
However, JAT general director Zika Petrovic recently announced the company intends to privatise up to 49 per cent of its holdings which will be made available to both domestic and foreign investors. Managers say the revamped JAT, which also has a redesigned logo, will probably never fly again with all 30 aircraft. In a bid to re-establish its global presence, the company says it will operate only on profitable routes and with no more than 14 or 15 aircraft. The balance of its fleet will be dry or wetleased to joint venture partners. JAT commercial director Borivoje Kovacevic says serious negotiations are now taking place with 'three parties.' Sources say they might be from the former Soviet republics.
JAT appears committed to building a trimmer, more cost-efficient and profitable airline. One of the many challenges it faces is to reduce staff from the current 6,000 to a more realistic figure of 3,000. 'Lay-offs are not an option,' says Kovacevic, adding instead the company will try to find work for people in some of its other operations. JAT also owns a chain of hotels called Slavija, a catering company, the AirLift travel agencies, a fleet of 30 agricultural aircraft and a flight training academy. Many of these affiliates were expanded when international sanctions were in place to generate increased revenues while JAT's aircraft sat idle.
Other changes adopted by JAT during the enforced hiatus include a new business class under which its standards and amenities have been upgraded. Onboard and on the ground, first class passengers will be served and escorted by a group of specially trained employees.
More modest goals
Circumstances have trimmed JAT's wings, and consequently the company's outlook and goals are now more modest. Still, managers are confident that JAT's past successes will help pave the way to a prosperous future. What the airline has managed to preserve, they say, is more important than what it has lost. More than two years of sanctions have left the airline with immeasurable damage but Kovacevic says the company still has a lot going for it, including its reputation as a safe carrier with quality aircraft and a well trained, highly professional staff.
But coming up from behind in an increasingly competitive market will not be easy, admits Kovacevic. In Europe especially, even carriers which haven't been plagued by war and sanctions are posting losses. New countries have also sprouted across the continent and three former Yugoslav republics each have airline companies of their own: Croatia Airlines, Macedonian and Slovenia based Adria. Nevertheless, Kovacevic says JAT is ready for the challenge.
And the carrier's performance since October 1994, when sanctions were eased and JAT emerged on the international market, provides grounds for optimism.
JAT has had considerable success in re-capturing traditional markets. The company welcomed the partial lifting of sanctions against Yugoslavia in late 1994 with great enthusiasm. The embargo invalidated all JAT's bilateral agreements, so representatives immediately began to negotiate new contracts. Most countries agreed to grant the carrier short-term, renewable permits until new accords were negotiated with civil aviation authorities. Others decided to honour those negotiated before 1992.
JAT launched its first international flights to Moscow and Athens just days after the flight ban was lifted. Within months, the company had established a presence at dozens of European airports, including most major capitals. Six months after the total withdrawal of UN sanctions against Yugoslavia in November 1995, it is flying to all 32 of its former European destinations, albeit with lower frequencies.
Significant strides
JAT managers placed considerable faith in the loyalty of their customers - especially expatriate Yugoslavs - giving the troubled airline a boost and its hopes appear to have been realised. Operating with 30 per cent of its total fleet (nine aircraft) in 1995, JAT recorded load factors of 90 per cent on international flights and 70 per cent on domestic flights. By the end of this year, the company expects to be carrying nearly 1 million passengers, mostly on international routes.
The carrier has made significant strides in the last 19 months. Probably the hardest hit of any company in the truncated Yugoslavia, JAT sustained devastating blows during sanctions. 'We managed to stay afloat in impossible conditions. I think we're well qualified to write a survival guide for other airlines,' says Kovacevic, with a smile.
The carrier's fleet of 30 aircraft was grounded in July 1992 when the UN's Security Council banned JAT from international airspace. The move was part of a package of crippling economic sanctions designed to punish Belgrade for fomenting the war in Bosnia. For the next 28 months, JAT operated only a handful of flights per week on two domestic routes. Scrounging for fuel in a country sealed off from even essential imports, the company absorbed financial losses in an effort to maintain its aircraft and satisfy minimum licensing requirements for pilots and technical staff.
During this period, the company suffered net losses estimated at $100 million. 'Our actual losses can be measured in hundreds of millions. We lost our market continuity, and such losses are very difficult to assess,' says Jovan Plavsa, JAT director overseas markets. During 1993, the first full fiscal year under sanctions, revenues were a meagre $1.7 million. This represents just 0.4 per cent of revenues in 1990 when JAT took a record $410 million. Before the embargo was partly lifted in 1994, its annual operating costs exceeded revenues by some $2 million and the $19 million annual payroll came out of government coffers.
Under pressure from sanctions, Serbia's government certainly had no spare cash yet it did manage to keep JAT on life-support. Kovacevic admits the government played an important role in sustaining JAT financially, but he also credits the company's employees with remarkable resourcefulness and dedication. For two years, JAT's 6,000 employees reported for duty on a rotational basis. Only 40 per cent were working at any one time. Flying on domestic routes about once a month enabled some 200 pilots to log the minimum number of flying hours needed to retain their licences. Irregular and trimmed pay cheques failed to satisfy even basic needs, forcing many employees to take up second jobs, open businesses or peddle smuggled goods on the black market to eke out a living.
Drawing from a two-year stockpile of spare parts, the company's technicians managed to keep five of JAT's 30 aircraft in flying condition. Kovacevic says a team of British mechanics conducted a thorough inspection of JAT's B737-300 aircraft in 1995 after it landed at London/Heathrow for the first time after sanctions were lifted. He adds that their review was extremely positive and helped JAT secure agreements with other countries.
However bringing the rest of its aircraft into line with international standards was a costly operation. The company's fleet includes nine DC-9s, eight B727-200s, nine B737-300s, three ATR-72s and one DC-10-30. Some $70 million was required to update parts and fit the aircraft, some of which are 20 years old, with newer technology. JAT's DC-10 had to undergo a D-check in Italy at a cost of $7 million, before it could be licensed to fly again. To complete the necessary inspections, the carrier had to appeal for loans and donations which came primarily from large, state-owned companies and the government of Serbia.
A host of other financial challenges continued to be faced by JAT for some 19 months after sanctions were lifted. Insurance coverage for one aircraft at Lloyd's of London normally costs $1.5 to $2 million annually, but JAT's fees were considerably higher because Yugoslavia was classified as a high risk zone. And as long as the country was still under a fuel embargo, the company had to pay in cash for kerosene purchased at European airports and was often charged considerably higher rates for kerosene than the average $200 per tonne.
Outstanding debt was also a key issue in renegotiating landing rights at international airports. But Kovacevic says JAT's European partners demonstrated understanding and a genuine willingness to cooperate. The company was allowed to reprogramme its debts, with regular payments coming from ticket sales revenue. 'Sanctions put us in a situation where we could not meet our debt obligations. This is our only option,' says Kovacevic.
Reprogramming debt and renegotiating bilateral contracts has proved to be more difficult in some of JAT's other overseas markets. The company still hasn't secured approval to reactivate its routes in the US, Canada and Australia. JAT owes Australia some A$1.5 million for outstanding service fees, operating costs and tickets, according to Jovan Plavsa, JAT director overseas markets. He adds that Canada is waiting to collect an estimated US$450,000 and the US $800,000.
'We are not trying to avoid our obligations. But we must have a licence to fly first - that's the best guarantee our debts will be repaid,' says Plavsa. JAT is especially eager to reactivate these intercontinental routes which once accounted for 50 per cent of its total revenues.
Debilitating setbacks
Staying airborne in the wake of debilitating setbacks has not been easy for a company that once enjoyed ample prestige and healthy profits. Before Yugoslavia fragmented in 1991, its national carrier recorded impressive growth. Its fleet of western aircraft was renewed and expanded in the 1980s and during the same period the company beefed up its international network and expanded its market share.
At its peak in 1990, JAT transported more than 4 million passengers and posted net profits of some $40 million on revenues of $410 million. It operated some 180 scheduled services a day, employed more than 10,000 people and had offices in 60 cities.
Kovacevic does offer an optimistic forecast. He expects the company's revenues will climb to close to $200 million by the end of this year, a 90 per cent increase over 1995, with some 1 million passengers being transported. The company also aims to enhance its current network by adding at least four lucrative intercontinental routes to New York, Toronto, Sydney and Johannesburg. If all goes according to plan, 1997 revenues could reach $300 million from which JAT would see about a 10 per cent profit, says Plavsa.
JAT Yugoslav Airlines is back on the growth path after four years of constrained activity, but even when Serbia has finished repairing its bilateral air transport relations it is unlikely the carrier will ever return to its former size.
Source: Airline Business
