STATE-OWNED carrier Eurocypria could run aground by the end of the week unless parliament urgently approves a €35 million bailout, the Finance Minister warned yesterday.

Charilaos Stavrakis was speaking to newsmen after a lengthy session of the House Finance Committee had debated whether the charter airline should receive a proposed €35 million capital increase from the government.

The minister asked parliamentarians to fast-track a government bill for the cash injection so that it is tabled at the plenum this Thursday.

Stavrakis revealed that a number of alternatives were discussed yesterday to rescue Eurocypria, including a possible re-merger with Cyprus Airways or having the airline to declare a controlled bankruptcy whereby some of its assets would be transferred to Cyprus Airways.

But with the European Commission breathing down the government’s neck stating that a merger of the two airlines was out of the question, this left very little room for manoeuvre, Stavrakis said.

“So either we shut down the company [Eurocypria] today or by Friday…or we keep it alive,” he told reporters.

Stavrakis said the €35 million rescue package, approved by the Cabinet last year, was contingent on Eurocypria drawing up and implementing a cost-cutting and restructuring programme, which the airline appeared to have done.

Weighing in, Eucocypria Chairman Eleftherios Ioannou said he would have no choice but to resign immediately unless the funds were released by week’s end.

Ioannou insisted yesterday Eurocypria was well on the way to recovery, having succeeded in controlling losses over two consecutive years (2008 and 2009) and forecasting a further drop in losses for 2010.

Stavrakis said a financial study commissioned by the Finance Ministry noted that a cash boost does not violate EU regulations, which prohibit state assistance to airlines. Because the aid was linked to the airline improving its finances, it could not be regarded as a subsidy, he added.

MPs were unconvinced, however, and will be asking the Commissioner on State Aid for his opinion on the matter. Discussion at the House Finance Committee continues today.

Eurocypria meanwhile appears to have been thrown a lifeline by a Polish tour operator that is keen to take a minority stake in the company and use this investment to expand its operations.

Eurocypria chairman Ioannou said that once the government approves the capital increase programme, other investors may also bid for a share in the airline that operates charter flights to Cyprus and Greece, mainly from central and northern European airports.

Eurocypria is 100 per cent owned by the state, which purchased it in 2006 from Cyprus Airways (CY), which itself is majority-owned by the government. Cyprus Airways has for the last six months been suggesting that Eurocypria be closed down.

A recent report, commissioned by and presented to the public by five Cyprus Airways unions, concluded that both airlines could not operate successfully in the current competitive aviation climate.

The findings were disputed by Eurocypria, claiming among other things that the report was biased since one of its authors was a former consultant for Cyprus Airways.

Ioannou hit back at management and trade union criticism from troubled national carrier Cyprus Airways that the charter airline should close down, saying that Eurocypria’s operating cost was 30 per cent below CY and thus more attractive to tour operators.

Eurocypria operates a lean operation of six aircraft with 250 staff and crew and has a turnover of €100 million, placing it on a path for quicker recovery than Cyprus Airways that is burdened with higher staff costs and loss-making routes.

According to the charter airline’s chairman, the company has already sold 70 per cent of its seat capacity for 2010 and is expected to complete its programme for the whole year.