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Serbian-Arab affairs

They promised the moon, they promised airplanes and millions, that’s how you can briefly describe the promises that government representatives kept announcing to Serbian public since 2013 to this day, when it comes to the interstate agreement between Serbia and UAE.

Insajder: Air Serbia
Photo: Insajder / Air Serbia

From chip manufacturing, military arms that we manufacture for Arabs, their investment in agriculture, tourism, culture, banking… In the last five years, within Serbian-Arabic collaboration, Belgrade Waterfront was established.

The only Arab investment that was completely successful is Air Serbia.

Air Serbia originates from the national airline JAT. Since, 2014, 51% of Air Serbia is owned by Air Serbia, while 49% is owned by Arab company Etihad.

For five years Serbian citizens have been listening to completely different statements when it comes to the contract with Etihad and business of Air Serbia. From information that strategic partnership with Etihad will lead Serbia to become dominant in the region, that that is now a company that does business in a positive way – to the statement that everything is contentious when it comes to the contract with the company from UAE and that the agreement has bad effect on Serbia.

At this moment, no one really knows what the full picture is except for the Air Serbia management, government representatives and Etihad. Regardless of the fact that Serbia has majority ownership over the company and that money from Serbian citizens is being invested towards it, all of those obligated to answer questions refuse to provide any information that would shed some light on the condition the company is currently in.

According to the signed contract, the state was supposed to invest in Air Serbia until the end of 2016. That’s why financial reports from 2017 are important, and they will become public from July, when it’s going to become apparent whether this is a profitable enterprise or if Serbiainvested 10 times more than Etihad to gain a company that financially stands worse than JAT once did.

Based on the investigation that journalists of Insajder production conducted, available information, reports and document analysis, these are the facts:

In 2013 when signing of the contract took place, JAT was a company that has existed for 86 years while Etihad only 10.

Etihad turned the loan of 40 million dollars into an ownership of 49% over Air Serbia.

In these 5 years, Serbia has in various ways invested a few times more in the mutual company than Etihad. While Etihad gave a loan of about 100 million dollars to the mutual company that is supposed to be reimbursed along with the interest, Serbian expenses are non-reimbursable.

It’s a fact that Air Serbia made a certain success compared to JAT – an enterprise that was in debt and on the brink of bankruptcy.

Since 2013 the number of destinations did increase, a direct line between Belgrade and New York has been created, the number of passengers also increased.

Instead of old boings, Air Serbia now operates with newer Airbus aircrafts that are on average 10 years old, but is renting them. It doesn’t own any of these aircrafts. Ten new have been ordered that are, according to the announcements, supposed to arrive this year.

The exact number of signed contracts has never been determined, it should be between 5 and 13, and only two have been published on the government’s website, along with one annex. Of all the other contracts, nothing is known – officially. Unofficially, a lot of things are known.

Air Serbia did do business in a positive way, but according to the analysis of the financial reports, the result only seems that way because Serbian expenses towards the company are taken into account as revenue which they certainly are not, the company didn’t earn that money but gained it from Serbia as non-reimbursable.

At the end of the day, the questions stands whether this contract with Etihad was indeed the best solution to salvage JAT or there are some other Serbian-Arab matters involved that will in the end benefit one side and hurt the other. Details of everything mentioned will be shown in the next three episodes of Insajder.

„SERBIAN-ARAB AFFAIRS“

At the time of signing ofthe interstate agreement between Serbia and UAE in February 2013, which was the foundation for following contracts which amongst the rest include the strategic collaboration with Etihad, the Prime Minister was Ivica Dačić, First Deputy Prime Minister and Minister of Defence was Aleksandar Vučić, Siniša Mali, currently the chairman of the board of directors of Air Serbia, then the counsellor of First Deputy Prime Minister but mostly unknown to the general public, Minister of Finance and Economy was Mlađan Dinkić and Minister of Transport was Milutin Mrkonjić.

All of them have refused, after several months of attempts, memos and more than 100 calls, to give interviews for Insajder. That was a chance the explain decisions they made on the country’s behalf, to respond to the facts we established through several months of investigation and to, with reasoning and proof, perhaps persuade citizens that they made rightful decisions when it comes to Air Serbia.

In the meantime, while refusing to respond to concrete questions, they used every possible opportunity to publicly claim that that is the best contract that could’ve been created.

Mlađan Dinkić, 2013:

“This is a great day for Serbia, this is an event of national importance, and Serbia has gained strong wings. If someone were to say a year ago, that we’ll be able to bring such partner into our almost vanquished JAT that has ancient aircrafts, no one would’ve believed them. “

Ivica Dačić, 2014:

“Even though governments had to face JAT’s losses, which were on average about 35 million euros annually, since 2003, this government actually managed to privatize the company.”

Nebojša Stefanović, 2016:

“Today, Air Serbia is functioning incomparably better than JAT did in any given moment in the last 10 years and we have a situation where this company is achieving positive results. We have a situation where you have direct lines to some of the most important destinations worldwide and where government is not pouring 30, 40, 50 million of euros per year anymore.”

Zorana Mihajlović, 2015:

“When you mention Air Serbia, or when you mention flaws JAT had, and then Air Serbia as well, it operatively started to function last year in October, therefore, that’s practically the first year of its existence. Do you think that it could’ve, in just a year, fix all the things Democratic Party ruined for years through JAT?”

Aleksandar Vučić, 2013:

“How come no one came forward to say – congratulations you guys, we’ve been losing 50 million euros on JAT, annually. Yes, about 300 people will be let go, but there will be 100 or 200 people or even more hired, we will gain 50 million euros and from 50 million euros of loss we’ll have 50 million euros of profit in just a year. That not enough for you to say – wait, that’s good news, that’s something all of us can be proud of.”

 

It’s a fact that JAT was a company in debt, dealt with losses but was at the same time a political prey to every government. There were two unsuccessful attempts of privatisation before 2012 – a strategic partner could not be found. JAT hasn’t been investing in purchase of aircraftsfor years, and the condition of the fleet was such that the basic functioning of the company was in question. In the same time, the state had to guarantee for tens of millions of euros of commercial loans that JAT acquired from banks. Since 2008 when the world crisis also began, JAT keeps making losses from year to year, even up to 30 million euros per year.

At the end of November of 2012, as one of the last attempts, as it later appeared, to create a business plan and practically avoid JAT’s bankruptcy, was the decision made by Serbian Government to form a work group that would “analyse the conditions and prepare the propositions for measures of stabilisation and recovery of Jat Airways”.

Velibor Slavuj was one of the members of the work group that finished with their work in February 2013. Same year, at the beginning of May he was appointed as the executive director for traffic in JAT. He remained on that position until September 2013 when Etihad’s management arrived to the company. In an interview for Insajder, Velibor Slavuj says that the company Air Serbia, which originates from JAT, did make progress but that that was also possible even without Etihad, if only the state was prepared to help JAT the same was.

Velibor Slavuj: I’m convinced that with the support that Air Serbia got from the Serbian Government and without Etihad, JAT would provide more significant results. Everything that we were asking for as help for our national airline carrier, they got and they got considerably more. If you imagine that help that they got being put towards previous management, you get that JAT didn’t have any losses at all, but profit.

Besides being the executive director of JAT at the time when Etihad arrived as a strategic partner, Velibor Slavuj is also a pilot, captain and instructor that was a member of JAT management during the 90s. From 2006 to 2012 he was the director for the introduction of standards in the flight procedure for Air India. He still works in India, he returned there after leaving JAT in 2013.

Serbian Government adopted the proposal that the work group for JAT recovery created, which essentially doesn’t differ much from the measures that Government will only a couple of months later accept as the solutions Etihad offered for JAT.

Velibor Slavuj: When it comes to the structure and the way of managing the group, the biggest influence was in the hands of Mlađan Dinkić, which means his ministry had the biggest influence on the group, but let’s go back, I personally see the forming of that group as a very positive moment, not because I was one of the members, but as a sign that a government actually comes to a realisation that something should systematically change, that a strategy should be created.

However, in February 2013 when Government adopts the conclusion of how to help JAT, the interstate agreement between Serbia and UAE was also signed. That agreement didn’t foresee the partnership between JAT and Etihad, but was a foundation for all the other contracts that were signed later on. According to Insajder’s investigation, at the time when the work group finished with the work, members of the group were not notified of the plan that, as it turns out, already existed, which is that Etihad is about to become JAT’s strategic partner.

Velibor Vukašinović, Duty Completer of General Director in 2013: It was never mentioned in the work group that there are any ongoing negotiations with Etihad behind the back of the work group. Somewhere near the end of 2012, I was writing a letter, very dissatisfied by seeing that there is nothing serious going on, we’re going around in circle…

Insajder: To whom?

Velibor Vukašinović: I wrote to the General Secretariat of the Government and after some time I was contacted and told “you are going to the new director of JAT”.

Insajder: Who contacted you after that letter, who called you to a meeting?

Velibor Vukašinović: The first associate of Aleksandar Vučić invited me to the Government and told me “you are going to be the one”. Because he was actually handling the whole matter. That’s the General Secretariat of the Government right there. He told me that the decisions was made that I was going to be the one to be appointed to that position. I still don’t know…

Insajder: As a body of Serbian Progressive Party or how?

Velibor Vukašinović: As a person who was chosen by Serbian Progressive Party for that position.

Vukašinović was appointed as the Duty Completer of General Director of JAT in April 2013. As a director he signed the contract with Etihad and was replaced just a couple of months later. From 2004 to 2009 Vukašinović was the director of the Sector for safety and control of air traffic in the Directorate of Civil Aviation of Serbia. He was a test pilot for UTVA aviation industry in Pančevo, and also the main federal aviation inspector of the FR of Yugoslavia. He was also a member of the board of directors of European Agency for the Safety of Civil Aviation.

Velibor Slavuj, who was the executive director of JAT at the moment when signing the contract with Etihad took place and has been working for the national company for more than 30 years, says that JAT didn’t need the company because of the image and that’s how it turned out to be in the end, thanks to the statements of the state representatives.

Velibor Slavuj: JAT was always known outside as a very serious national airline carrier. I have to remind you that JAT was one the safest airlines worldwide according to universal standards, that we never received any complaints, and now JAT’s experts work for some of the biggest companies all over the world, as well as in Airbus and Boing, therefore, that whole story of a negative brand is really not acceptable to me.

In the long history of JAT, the most important detail is that the national airline began to exist as a joint-stock company Aeroput on June 17th 1927. During 30s, the company was known as one of the more developed companies in Europe. On April 1st 1947 JAT inherited Aeroput. JAT was a company that was constantly progressing, and in 1970 the long-distance transport was introduced.

In 1985 JAT was the first company in Europe to purchase the most modern aircrafts, Boing 737-300.

During 80s, the company transported 5 million passengers annually and operated to 80 destinations on 5 continents. With the beginning of the war in Yugoslavia in 1992, all interstate traffic was cancelled due to United Nations sanctions. By 2000, with periodical and slow renewal of flights, the fleet was more grounded than flying.

After democratic changes in 2000, it was often spoken about debts, various ways of development were proposed and various group were forced in order to determine how to best recover the company. With the decision by Serbian Government in 2008, being a public company until then, JAT becomes a closed corporation JAT Airways, i.e. the state becomes the owner.

To the complaints about Government, led by Democratic Party, letting JAT almost go bankrupt, responsible parties from that period say that that’s not accurate and that the situation was such because world crisis hit aero industry all over the world, not just in Serbia.

Goran Radosavljević was the Secretary of State in Ministry of finance from 2008 to July 2012, and after that a counsellor in the Fiscal Council until December 2012.

Goran Radosavljević: It’s true that at the end of 2012 the company was in a bad condition in a financial sense, a strategic partner was searched for, one tender failed, then another one after that if I remember correctly, and there were much bigger companies all over the world either leaving the market or selling.

Radosavljević, however, says that all that lead to very limited space for negotiations. So in his opinion, that’s why Serbia negotiated with Etihad the things it can, not the things it wants.

Goran Radosavljević: You are talking about starting a company that will be profitable, and if you provided subsidies for 5 years, that must’ve cost you a lot, for that to become a stable matter in the next 10, 15, 20 years. And we can see that it’s been about 4, 5 years already and that the company still hasn’t gotten its feet under the table and the question is what’s going to happen next. We were not selling a golden goose, we were selling a company of loss after loss in which you could’ve invested another 100 million, you as a country, and still not have a guarantee that the money is going to come back.

The initiator of sale of JAT, or of the arrival of the UAE companies to Serbia, was MlađanDinkić, who had a position in every government from 2001 to 2013.

When they were the opposition as members of Serbian Radical Party, they claimed from the assembly platform that when they come into power, MlađanDinkić will answer for everything…

Aleksandar Vučić, 2006: I brought you a jersey today to show you what MlađanDinkić is going to wear. So I’m giving it as a present to the minister, and here’s a sound that is soon going to be heard for MlađanDinkić…

After a change of power, MlađanDinkić becomes the Minister of Finances and Economy in Ivica Dačić’s government but also gets a special status and becomes the relevant person for everything related to Serbian-Arab relations.

Mlađan Dinkić, 2012: Sheikh Mohammed is very interested in investing in Serbian agriculture and we made a deal to join our investments. We’ll start with an interstate agreement about collaboration in the field of agriculture and agroindustry and we expect mutual investments that will primarily be initiated from their side in value of a couple of hundreds of millions of euros.

In October 2012, as the biggest diplomatic success of the government of Socialist Party of Serbia and Serbian Progressive Party, the first visit of then First Deputy Prime Minister Aleksandar Vučić and Minister of Finances Mlađan Dinkić to United Arab Emirates was arranged.

The Emirates became great friends and collaborators of Serbia practically overnight.

 

United Arab Emirates supported NATO bombing in 1999 and diplomatic relations between two countries were re-established only in 2007. The situation worsened a year later when somewhere in the middle of 2008 UAE became the first Arab country to accept Kosovo, and there was little to none progress until 2012.

Media portrayed MlađanDinkić as the most deserving for the visit of Serbian delegation to the Emirates with comments that he already had contacts with investors from this country from before. That the potential collaboration can go far was indicated by the fact that Serbian delegation was hosted by Sheikh Mohammed bin Zayed Al Nahyan.

Sheikh Mohammed is the crown prince of Abu Dhabi and de facto the ruler of this Emirate. Officially, he is the Deputy Chief of the Armed Forces of UAE. He is the head of Economic Development Council of Abu Dhabi, whose one of the main tasks is to attempt to invest funds of this Emirate, which stands on oil and gas wells, towards various economic branches worldwide.

The First Deputy Prime Minister Aleksandar Vučić, who was also the Minister of Defence at the time, stated that there was a discussion in Abu Dhabi about potential deal for Serbian arms and ammunition in United Arab Emirates, along with the projects for the development and manufacturing of rocket systems and supersonic training aircraft. Vučić has then already stated that he developed a relationship with the Sheikh.

Aleksandar Vučić, 2013: I was invited to that lunch, he was surprised that I didn’t order anything. We spoke about geography, history, philosophy, he is a very well educated and serious man and that’s what got him interested. He showed me great honour by escorting me to my room, and that’s a distance of a kilometre in a hotel he built and is worth 4.5 million, just that one hotel.

When establishment of the collaboration between Serbia and UAE took place, the main topic was investing in military industry. In relation to that, one of the most important people, when it comes to the contact between Sheikh Mohammed and the representatives of Balkan countries, according to media, was Mohammed Dahlan.

Dahlan is a Palestinian politician or, as they represent him, the leader of opposition, rival of the Palestinian President Mahmoud Abbas. Dahlan was practically expatriated from Palestine in 2011, after President Abbas accused him of corruption and collaboration with Israel. Dahlan lives in asylum in UAE since 2011. In Serbia he is represented as Sheikh Mohammed’s advisor, and can also be seen on footage cameras recorder during Sheikh’s visit to Belgrade. The whole Dalhan’s family got Serbian citizenship in 2013. Serbian President Tomislav Nikolić awarded Dahlan with the Medal of the Serbian flag of second degree for merits in developing and consolidating peaceful co-operation and friendly relations between Serbia and the United Arab Emirates in March 2013. According to BIRN, he rents a villa on Dedinje from a state company DIPOS since 2014.

More intensive collaboration between Serbia and UAE begins at the beginning of January 2013. Followed by that, that same year there were multiple visits and announcements of Serbian-Arab collaborating projects. The officials were gathering almost on a monthly basis. Sheikh Mohammed came to Serbia a couple of times, Aleksandar Vučić went to Abu Dhabi a couple of times. During his visit to Serbia, Sheikh visits Karađorđevo, Kopaonik and Crvena Zvezda and refers to Vučić as “my brother Aleksandar”. Three armoured Mercedes GL 500s arrive from Emirates as a gift to Serbian Government.

When it was announced in 2013 that Etihad is becoming JAT’s strategic partner, this company was known worldwide as the company with the fastest growth. Etihad Airways was established in 2003. Just a year later, Etihad orders Boing and Airbus aircrafts in value of 8 billion dollars.

Etihad is the national carrier and the second biggest airline in United Arab Emirates, after Emirates. Before signing the contract with former JAT, Etihad became the owner of 29.21% of shares of German Air Berlin. That was followed by making some deals with Air Seychelles and buying a share of 40%, Air Lingus of 2.9% and a share in Australian company Virgin of 10%.

In 2013, along with becoming JAT's partner, Etihad became a coowner of 24% of Indian company Jet Airways, as well as a small Swiss company Darwin Airlines with the share of 33.3%.

In August 2014, Etihad overtook 49% of shares of Italian national carrier Alitalia, for which the estimated value is 560 million dollars.

 

As it turns out, this expansion didn’t show required desired results. In the middle of 2017, it was announced that Etihad had a loss of 1.8 billion dollars in the previous year.

First, in 2017 Air Berlin went bankrupt and cancelled all operations, and the fleet, slots and pilots were overtook by Lufthansa and EasyJet.

Alitalia declared bankruptcy in May 2017 and is about to be sold.

Last year, Etihad also sold Darwin Airlines, who was previously renamed to Etihad Regional.

Out of all the investments in Europe, Etihad only kept the share in Air Serbia.

 

In the last month, there has been a story of Etihad leaving Air Serbia and what’s about to happen to the company. Government representatives claim that that is not accurate. What actually is accurate is the fact that the five year contract that was never publicly published expires this year, and according to draft BIRN published 4 years ago, the contract on Etihad management support services expires on January 1st 2019 and is automatically renewed for another 5 years unless, as stated in the draft contract, Etihad notifies Air Serbia before July 1st in written form that they want to terminate the contract on providing management support services.

Velibor Slavuj: We practically put not just a big part, but absolutely the whole management in partner’s hands, without having any saying in partner’s decisions. I still think that the decision of strategic partnership with Etihad was a good idea, but the realization of that decision turn out with a bad result on our side.

From the announcement of MlađanDinkić, who was the Minister of Finances at the time, in March 2013, that JAT is getting a strategic partner, until the signing of that contract, only four months passed.

Velibor Slavuj: Officially, JAT led the negotiations, but yet never actually participated in the negotiations. We didn’t participate in the negotiations, nor were we given any information about the negotiations up until the end of July, just before the signing. I think that idea of the Government…

Insajder: What does that mean? – That was presented to you as a fait accompli?

Velibor Slavuj: That’s right, yes. Yes, yes. You’re completely right. I think that that idea of the Government was undeniably good, and again, I say that apolitically. That was the first Government in 20 years that seriously tried to resolve the issue of our national carrier. But I think that… My opinion is that the people that were chosen to run that project, didn’t do it very well.

Vukašinović went to a meeting in Abu Dhabi as a Duty Completer of the Director of JAT but says that he wasn’t given any insight in how they’re handling business, although he had a right to know because Etihad is a strategic partner in the mutual company.

Vladimir Vukašinović: That was already decided, I didn’t get any heads up, I wanted to thoroughly check what the organizational structure was, you’re doing a job and you need to see how everything is going to look like. What are you getting all those people into.

The initial contract, i.e. the frametransaction agreement, JAT got only a week before the signing. Only on July 23rd 2013. Legal team of the former national carrier filed, according to Insajder’s investigation, numerous complaints in attempt to protect both JAT and the state’s position in this field of business.

In the complaints for the draft contract that Insajder acquired, legal team asserts:

“We believe that, with the financial support foreseen with this contract and all the benefits that are offered, such as a discount on airport services and fuel prices, JAT Airways would manage business successfully even without the partnership with Etihad, in the sense predicted by the provided documents.”

Velibor Slavuj: I’m talking about the moment when we’re getting the first drafts of the contract and have an opportunity as a board to go through them and see what do they consist of.

Insajder: And you have only seven days until signing for such a complex task?

Velibor Slavuj: It depends, for some contracts we had even fewer days. The team was led by Siniša Mali, now I can’t remember some of the other names but they were his assistants. This more specialized part of contract was not really, I think that people hired were not exactly experts for that part of the job and were not capable of providing any advices that would help.

Also, according to the legal team, that decree about Etihad investing 100 million dollars, they say it’s not very specific as there are no information of exactly how much Etihad is supposed to be investing.

“We can’t see what good are the loans Etihad is offering with all the guarantees, compared to other loans we get from banks that we deal business with”, can be concluded from these complaints because the contract doesn’t state any terms of Etihad’s loan.

The Government of Serbia, as it turns out, chose the law firm Karanović-Nikolić to represent JAT and the state in the affairs with Etihad. The refused to talk to Insajder.

JAT’s legal team states in 2013 in the complaints of the draft of the initial contract that the representatives of that law firm act as if they are representing Etihad and not JAT.

Velibor Slavuj: Yes, Karanović-Nikolić also told us how the material is very extensive, it’s in English, that we won’t have enough time to go through them, that we shouldn’t bother, we should just sign it, which was obviously unacceptable and absurd. Our own attorney to tell us that we shouldn’t read it, we should just sign it, you know.

In those kinds of circumstances and a last minute review of the contract, Velimir Vukašinović, the Duty Completer of the Genereal Director at the time, signs the contract on JAT’s behalf.

Velimir Vukašinović: Well, I wasn’t satisfied, I wasn’t completely satisfied, but I didn’t have any saying in the decision of the strategic partnership with Etihad, only the Government, you know. But we did the best we could with what we had.

The general transaction agreement was officially signed on camera on August 1st 2013. At that moment, it unknown how many contracts were signed. Aleksandar Vučić, the First Deputy Prime Minister and Minister of Defence, signed on the Government’s behalf.

However, according to Insajder’s investigation, the contracts that were signed in Hyatt on August 1st 2013 as told to public, were actually signed a day before on an, for now, unknown location. Vukašinović, who signed the contract, in the interview for Insajder didn’t want to confirm the location were the contract was signed, but he did confirm it was signed a day before.

Insajder: Where was the contract signed?

Velibor Vukašinović:   In one residential object in Belgrade, I wouldn’t like to say where exactly, but it was signed a day before that, officially legally it was signed in Hyatt on 1st, and that was just one piece of paper. The actual agreement was signed a day before that.

Insajder: Wait, when you say in a residential object, does that mean it wasn’t signed in the Government building?

Velibor Vukašinović: Look, it was signed.

Insajder: A group of people gathered at someone’s place?

Velibor Vukašinović: Not a group of people, a group of officials.

Insajder: Who was there on that previous day of the signing?

Velibor Vukašinović: A lot of people attended, the President of the Assembly was there, Mr. Dinkić, who has left the Government on the previous day, was also there, there were all sorts of people, there were people from Etihad, there was Hogan, there was the Vice President, there was… That matter was finalised and then it was formally handled in Hyatt the following day in a glamorous way.

Insajder: Yes, but it’s a bit unclear because according to our investigation, the signing happened on the 1st of August in front of cameras, but it wasn’t the actual signing, everything was done by then.

Velibor Vukašinović: Yes, some final document was signed by the Government with the authorisation from someone from the Emirates. It is stated in the contract that it was signed on the 31st, there are both Etihad’s and Air Serbia’s stamp.

Insajder: It says 1st of August.

Velibor Vukašinović: It doesn’t say 1st of August, mine one says 31st. I mean, whether that’s official, but that’s the contract…

Insajder: You can’t say “whether that’s official or not”, I’m asking you why was it signed an evening before in some household?

Velibor Vukašinović: During the day.

Insajder: During the day, in the afternoon…

Velibor Vukašinović: Yes, during the day.

Insajder: And who exactly was there, you, Aleksandar Vučić, Dinkić…

Velibor Vukašinović: Hogan and me, there was Siniša Mali, there were people who are relevant.

Insajder: Was Nebojša Stefanović there?

Velibor Vukašinović: Yes.

Insajder: Was Nikola Petrović there?

Velibor Vukašinović: Yes.

Insajder: For what reason are they there, I really don’t understand?

Velibor Vukašinović: I don’t know. I don’t know, that’s…

Insajder: But you were the Director of JAT, who is signing…

Velibor Vukašinović: Yes, that’s right, but I’m not bothered by the environment. Definitely, it was the people in charge of the whole matter.

Insajder: But why was Nebojša Stefanović in charge of the matter, why was Nikola Petrović in charge?

Velibor Vukašinović: Trust me when I tell you that I don’t know, I mean, Nebojša Stefanović was the President of the Assembly at the time, you know, he’s an official. But Nikola Petrović, I don’t know.

Insajder: Well, did you ask?

Velibor Vukašinović: Excuse me?

Insajder: Did you ask?

Velibor Vukašinović: No. But they didn’t participate in the very act of signing, that all happened in an environment that is completely clean, in an open space with one normal table, right?

Insajder: It sounds like you were on a picnic.

Velibor Vukašinović: Well look, I think that’s a formal question, I think that’s a formal question.

In the meantime, the investment contract was published on Government’s website, stating the date August 1st 2013. On JAT’s behalf, Velibor Vukašinović was the signatory. However, on the signing ceremony in Hyatt, the contract was signed by Aleksandar Vučić and for Etihad, by James Hogan.

James Hogan was the first man on Etihad. There was a question in January 2016, whether Hogan’s development strategy of Etihad, who was for years taking over smaller companies that were having difficulties, correct. According to the analytics, owners from Emirates were not satisfied with the high price Etihad had to pay for this way of handling business.

Hogan left Etihad in the middle of 2017. He is the signatory for all the contracts between Etihad and Air Serbia. He now lives in Switzerland, and has refused to do an interview for Insajder.

On the signing ceremony of the frame contract in Hyatt on August 1st 2013, Hogan said:

Hogan: This is a big day as we have announced the beginning of a strategic investment in a new company. It can be considered as an evolution, Dane Kondić has been appointed as the director of the new company, and soon we will have to talk to the employees so they can be up to date with our plans.

As the general director, Dane Kondić was appointed as Etihad’s body, who at that time was not the director, it was Velibor Vukašinović.

The problem occurs because from the moment of signing the frame transaction agreement, officially on August 1st 2013, the actual transitional period began and was scheduled to be finalised on December 31st same year. That means that in that transitional period, the company that simply changed its name to Air Serbia is still fully owned by the state, and that Etihad will transfer the loan of 40 million dollars, which will be turned into 49% ownership, at the end of the year.

All details about that transaction, you will be able to see in the next episode, but what is important is the fact that, regardless of that all, according to the second contract, the management contract, Etihad takes over the management of JAT just a day after the contract was signed on August 1st, although they didn’t have the right to do so.

Velibor Vukašinović: That day, 2nd August, I had an extremely uncomfortable conversation with Dane Kondić, I told him that I am going to publically resign the following day, because he disabled me, even from sending e-mails to inform everyone. You all have an e-mail, general director is addressing you, and he disabled me in all that. He managed to get into that information system because we got it cleaned up. I said that I will publically resign.

Insajder: And that all happened just a day after signing?

Velibor Vukašinović: Yes, long and stressful conversation and what’s happening… At that moment, Etihad’s HR appeared, Ray Gammell, who came in with his associates and said “This is shadow management”. I told him “That’s impossible, sir. When I resign from the position of the General Director, you will have to take over”. But this shadow management that will handle business, and I will formally be there just to sign papers, I told them that that’s out of the question, you know.

Only two days after the contract was signed, first issues with EU appeared, because Etihad representatives openly demonstrated their plan to run the company, even though they are minority owners.

When Serbia ratified and adopted the European Open Skies Agreement in May 2009, she became a part of European Union when it comes to air transport.

In order for European companies to protect themselves from a disloyal competition, some restrictions were established for members, and amongst them was the restriction that it is mandatory that the majority ownership, so at least 51% of ownership, must belong to the state of Serbia or a European company, and that no one outside of European Union can effectively run the airline.

Velibor Vukašinović: We also received a letter from officials in Brussels, the European Government officials, that says that when it comes to 51, 49% you do have rights… When it comes to managing the company, you don’t have the right to employ someone from outside of EU.

Because of this, Air Serbia was at the beginning of 2014 about to be placed under investigation by European commission, under the threat that because of breaking the rules it could lose the license to operate within Europe.

The investigation led to series of changes and caused the frame transaction agreement to be changed and signed again on July 31st 2014. That contract has been publish on Government’s website.

Only in middle of 2016, it was announced that the European Commission finalised the investigation of the ownership structure of Air Serbia, concluding that the majority owner of the national carrier is the government of Serbia, who also has the managing rights.

To Insajder’s question what proof did the state of Serbia enclose to prove that it manages the company, European Commission briefly responded with:

After we received the documentation from Serbian competent institutions, the Commission concluded that Etihad’s investment towards Air Serbia was in accordance with the regulations. However, the Commission invited the competent institutions to keep observing the situation”, is stated in the brief response from the European Commission.

Vlelibor Vukašinović: One more thing is very important, only in July the following year has that transaction agreement been changed, actually that business contract, the financial one, right? It’s been amended to the contract based on which the whole matter started. Till this day, that thing remains very unclear to me, how was all that handled.

On the Government’s website, only two contracts and one annex have been published.

However, on July 31st 2013, as stated in the draft of the frame contract, five contracts and two documents were signed, seven in total:

The frame transaction contract, the management contract, the investment contract, the contract of shareholders, the contract on consulting services, along with two contracts concerning deadlines for signing and the implementation of a loan agreement.

The remaining six contracts, as stated in the plan of the transaction agreement, should have been signed before the so called transaction finalisation, and the most important amongst them was the loan contract.

Along with the attempt to overtake the management over JAT in the beginning of August 2013 but not have any responsibilities for it in the transitional period, the procedure of signing the loan contract was commenced, based on which JAT was to transfer 40 million dollars worth of loan to JAT’s account. This contract was never published, not even in the draft.

The management of JAT refuses to sign the loan contract without the authorisation from the National Bank and the guarantee, as per Serbian laws.

In the complaints that the legal team of JAT filed, which Insajder managed to acquire, amongst the rest it is stated:

The contract foresees the document of assurance, which is not specified, so it’s unclear what pledge does Etihad want, but it’s foreseen that it’s JAT’s obligation to ensure the mortgage, transfer and other pledges on a whole or some part of a property – are those the SLOTs?”

Velibor Slavuj: So, we explained and stated that slots cannot be that type of compensation but that the National Bank must approve the loan if it’s ok. JAT has traditional slots, which are permanent slots, we operate to almost all the metropolises of Europe for more than 50 years now. And we operate them in certain times, in certain clots that are exceptionally commercially efficient. Let me be clearer – for example, we negotiated with the Chinese about the thermal power plant Obrenovac. And now, we sign a contract with them so they can invest in the thermal power plant Obrenovac, and that they can get out of the deal whenever, but as the compensation for the investment they can take Sava river. You know, simply no one can sign that, whoever that might be, even the government.

Insajder came across a comment on the contract that Nenad Mijailović, current State Secretary in the Ministry of Finance and former Secretary in the Ministry of Economy, directed towards Siniša Mali, Ivica Kojić and Luka Tomić, warning them that the proposed solutions are not good.

You’ll see that what they’re asking for cannot be sustained and that we are already in violation”, Mijailović warns.

Nenad Mijailović refused to speak to Insajder. Mijailović was since 2009 to 2013 in the Privatization Agency, he was considered as Dinkić’s man. He’s been the Secretary of the Ministry of Finances since 2013. In June 2013, a month before the contract with Etihad was signed, he became a member of the board of directors of NIS.

Regardless of all the comments on the contract, Siniša Mali sends an e-mail to Velibor Vukašinović, asking for the process to be speeded up and transferring all responsibilities on him:

“I agree for you to take over the full responsibility for the negotiations and coordination of the loan contract. That more so as you are signing as JAT’s director and it’s logical that that is your responsibility. Please get into contact with lawyers, Etihad representatives and the representatives of the Ministry of Finances so that the final version can be established. Since JAT needs to get the loan as soon as possible in order to cover the managing expenses, please speed up the process as much as you can”, Siniša Mali writes.

Velibor Vukašinović: He wanted to tell me that everything I am going to sign in the future, and that’s the most unpleasant thing, that’s a 40 million dollars loan that is being transformed into Etihad’s ownership. And I didn’t sign it in the end.

Insajder: You didn’t sign it?

Velibor Vukašinović: No, I didn’t.

Insajder: Well who signed it?

Velibor Vukašinović: They signed it later on, they signed it later on in the process…

Insajder: When they replaced you or what?

Velibor Vukašinović: Yes.

It can be seen in the frame transaction agreement signed on July 31st 2014 and published on Government’s website, that some of the complaint in this case have been accepted, at least the ones that refer to abiding the law and the stance of the National Bank of Serbia. As stated in the contract, Etihad ensured a convertible loan after it has been registered in the National Bank in accordance to the law on foreign exchange business.

Velibor Vukašinović assumes that the contract was signed when the next management came, with Dane Kondić in charge.

Dane Kondić was officially appointed as the director of the national airline in September 2013. That was in the transitional period in which Serbia is still the owner of JAT that is soon to change its name to Air Serbia, but the company was starting to be run by Etihad’s bodies. In the middle of 2017 James Hogan left Etihad, and at the end of last year Kondić has been dismissed from the head position of Air Serbia.

Dane Kondić was upon his arrival to Serbia represented as a man with a rich career in aviation industry. According to his official biography, at the end of 90s he was a business development manager for an Australian company Qantas, and he also worked for Malaysia Airlines. Before coming to Serbia, he was a regional director of a company that deals with business optimisation in aviation industry – “Sabre Airline Solutions” for Southeast Asia.

To the head position of the new company he arrive with basically no experience in running an airline company. Kondić was born in Sidney, his origins are from Serb Republic, and in the meantime, he obtained the Serbian citizenship.

Velibor Slavuj: When that man Mr. Kondić became the president of the company, I tell that story as an anecdote, but after 15 minutes of conversation he started repeating some kind of a mantra that goes like this: “Serbians don't do anything, Serbians don't do anything”, which was shocking for me, to have that opinion of the country and the national airline that you are going to be the head of, and being our citizen, we gave him a passport and he comes with a mantra “Serbians don't do anything” and now you have to like make order out of those ignorant and incompetent people and show them how things are done.

The frame contract was officially signed on August 1st 2013. The loan contract was, according to everything, signed after the change of management in JAT. Etihad transferred the first part of the loan to Air Serbia in October 2013. However, since August till October, the image of the company changed, new uniforms were ordered, new design, new aircrafts were ordered on leasing... All of that paid by JAT.

Velibor Vukašinović: There is a situation now where aircrafts are arriving, some Airbuses, we are to deposit 750 thousands of dollars for the aircrafts to rent them on leasing, we haven't actually checked them either, which is always the case, for JAT engineers to check the aircrafts, we are ordering aircrafts for Etihad's needs who are then going to lease them to us. It's some kind of a business policy that I don't want to sign on.

Insajder: But in your time that was...

Velibor Vukasinović: I didn't sign that.

Insajder: Who signed it?

Velibor Vukasinović: The Government. The Government came to something that looked like an illegal decision. They held a meeting 50 meters from me and I didn't even know. The meeting was held, the Government approved the funds, and Etihad took the aircrafts and then released them to us for a lot of money. That's how we got the aircrafts, Etihad either released them or leased them to us. I think that that was an extremely expensive way to do it. 

At the moment when Etihad becomes the strategic partner, according to the financial report, JAT had an enormous debt of 73 million dollars.

Velibor Slavuj: Absolutely inaccurate, because I think that there are enormous expenses being made in the period from when they took over the company until the closing date. I think that the major part of that leasing happened in that period, that the expenses were as much because they consequently showed the result that was far from the actual result of the company.

Insajder: So practically, Etihad arrived to something that we can consider a new company that we created during the previous months?

Velibor Slavuj: Yes, we can put it this way - Etihad said - you are first going to sort it out this way and then we will come. But since you don't know how to sort it out as it should be sorted out, we are going to do it for you. And that's going to cost much more than if you were to do it yourself.

In the transitional period when Air Serbia is still owned by the state, i.e. from the signing of the frame contract in July 2013 to March 2014, ten new Airbus aircrafts were ordered. Of that, in 2015 presenting Air Serbia's results to Serbian Diaspora in Australia, the director of the mutual company at the time, Dane Kondić, said:

Kondić 2015:

“You know... You saw the footage, of Siniša Mali and me, my good friend the Chairman of the Supervisory Board and myself, going together to Dubai, we went shopping, I've never spent a billion dollars the way we spent it that day, but we ordered 10 newer generation Airbus 320 aircrafts than the ones arriving to the fleet in 2018.”

The strategic partnership contract was officially signed on August 1st 2013. However, Etihad turned the loan of 40 million dollars into the ownership of 49% over Air Serbia only in 2014. All the expenses, actually the debts made in that period, when it comes to amongst the rest, forming a new Air Serbia brand, acquiring new uniforms, training courses for pilots, renting the aircrafts, were taken care of by the state of Serbia. 

To be continued...

 

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