Airline charged with financial malpractice and operational incompetence (478 words)

Published: 5/24/2001

There is still no end in sight for the long running saga over financial malfeasance at Bashkortostan carrier, Bashkirsky Airlines (BAL), despite the arrest of Vilmir Gaziev, former General Director, in March 2001 on charges of fraud. The charges relate to his activities between October 1999 and November 2000, which included the purchase, for $9.4m, of three life expired Tu-154Ms, using state funds from Czech carrier CSA, in a deal reported to have netted him $500,000. It is hardly surprising, in the circumstances, that the government audit commission's ongoing investigation of the airline has found the quality and management of the airline's accounts to be very poor. One of the charges levelled against Gaziev relates to the transfer of $3m from the company's accounts, with no explanation and, as the audit commission, has stressed, documentation. Accordingly, the commission has concluded that the company's accounts are not a true reflection of the airline's financial situation. Both current and former management are singled out particularly for continuing Gaziev's banking practices, with a number of lightly documented transactions via Moscow banks resulting in certain individuals receiving Rb74m in cash. The mismanagement of the company has also been accompanied by a steady decline in both passenger and cargo traffic, leading to accumulated losses of Rb296m, on revenues of Rb46.6m, over the last two years. Costs at the airline, according to the commission, have doubled over the over the same period, leading it to accuse the financial managers of substantially “overestimating” costs. It points out that the cost of the passenger flight per kilometre on the route to Moscow from Ufa is significantly higher than other airlines, despite the aviation fuel price in Ufa being among one of the lowest in Russia. Where its commercial operations are concerned, the commission accused the airline of inconsistency in fare policy, with dramatic rises on some routes resulting in little benefit in terms of revenue. The majority of flights operate unprofitably, including flights to the generally profitable vacation resorts of Mineralny Vody and Sochi, which managed to recoup only 50% of the flight's expenses. Since the beginning of 1998, The airline's accounts receivable are reported to have increased by 250%. Debtors numbering over 1,000 entities were owed $700,000 at the time of the audit and some German, Pakistani and Turkish companies have waited for payment for eight months. The airline is also reported to have borrowed money to fund its working capital requirement at rates of up to 40%. The commission also concluded that the company was remiss in the monitoring of its fleet: the audit revealed the “loss” of one An-2 and two Mi-8, leased in June 1996 to an aviation firm called Berkut, whose lease expired in May 1997 with lease payments unfulfilled. The whereabouts of the aircraft are unknown.

Article ID: 2557