Swissport Loses Out In Ukraine … For Now

Either Swissport International Ltd. was the victim of a corrupt legal process in Ukraine where judges still act like Soviet-era puppets who hold hearings that aren’t scheduled on any court docket, refuse to deliver legal briefs and mysteriously recuse themselves at the last minute, all to enable a hometown hostile corporate raider to pay $400,000 for a thriving $30 million business, including $8 million worth of GSE …

… or Ukraine International Airlines was the victim of an underhanded business deal, taken advantage of by a much larger, more famous company that turned the screws on its minority business partner right from the start and, finally, fed up with this hostility, but only after failing to get both sides to agree to “civilized principles,” decided to stand up and fight for its rights in a court of law.

Take your side, but both companies can agree that Swissport lost out in Ukraine, at least for now.

After almost a year of legal wrangling, a Ukrainian appellate court ruled on March 27 that Swissport had violated UIA’s minority shareholder rights, immediately stripped Swissport of its 70 percent outstanding stake in joint venture ground handler Swissport Ukraine and essentially handed it over to UIA for just 1 percent of the JV’s value.

“This hostile raider attack was based on alleged violations of formalities without legal grounds and now resulted, after an unfair judicial process, in this surprising loss of ownership,” Swissport stated in a press release.

After the verdict, UIA renamed the company Interavia (the original name of the ground service provider), and announced new management was deliberating on a business plan to run the company independent of the airline. Swissport cut off the Interavia from its corporate passenger servicing system and IT systems. The international ground handling company also stated it would fight the verdict and return to Ukraine.



UIA’s basis for legal action against its former partner was a claim that Swissport was violating its minority shareholder rights. Namely, Swissport wanted to further invest in the ground service provider to keep up with its double-digit growth.

That action, if unmet by any further capital from UIA, would naturally dilute the value of the airline’s stake in Swiss-port Ukraine.

According to UIA, Swissport unilaterally voted in favor of increasing its investment in the JV at a shareholder’s meeting on March 6, 2012.

However, in a Swissport press conference held April 17 to discuss the case, the company said any talk of further investment was just that – talk – and a final vote on the matter would take place at a future shareholder’s meeting.

Based on a “mere discussion” of a future capital increase, UIA went to court, according to Swissport.

“It was not a discussion,” Evgeniya Satskaya, UIA’s corporate press secretary, told us by email after the airline held its own press conference on April 18. “On March 6, Swissport voted in favor of dilution of UIA’s shareholding in Swissport Ukraine.”

Satskaya also said that decision was against the rules of the participant’s agreement. UIA subsequently sent a default notice to Swissport. But given the absence of any response UIA brought the action to court.

The airline’s spokesperson added UIA wanted to invest in the ground service provider.

“Investment has always been each party’s sole right,” Satskaya said. “UIA was willing to invest based on a long-term development strategy. But the parties were not able to agree due to different visions of future development for Swissport Ukraine.”

Swissport ended up losing its case in the first round before the Kiev City Economic Court and appealed the decision.



No matter how the JV ended up, it certainly started out on a high note.

“Kiev becomes Swissport station number 175,” reads the headline of the press release Swissport posted after UIA sold a 51 percent share of ground handler Interavia to the company seven years ago.

With annual operating revenue of $2.6 million handling some 12,000 flights, Interavia was the biggest ground handler at Borispol International Airport in 2006. The company expected to grow by 20 percent by just the following year and planned to expand to other airports.

“With its strong economic growth and its rapidly rising air travel volumes, Ukraine fits ideally into the Swissport strategy of gaining key footholds in promising new markets,” the press release adds.

At the start of the JV, UIA held on to 29.4 percent and its original business partner, Airline Business Handling, kept a 19.6 percent stake.

Swissport, already providing ground handling for UIA at other airports, now had a prime position at KBP, UIA’s hub and the country’s largest airport serving its capital, Kiev.

At its March press conference, Swissport indicated the JV prospered until 2011 as Swissport Ukraine gained more customers and expanded to two other airports in Ukraine. By then, Swissport’s ownership in the ground service provider had grown to some 70 percent after buying out ABH in 2008.

But 2011 also marks a turning point in the JV when ownership in UIA changed hands to more private investors.



Or make that to one private investor.

Ukraine’s flag carrier was a state-run airline with foreign capital from its start in 1992. In 2011, the government sold its 61 percent stake to three existing minority shareholders with Aron Mayberg at the forefront.

Swissport takes the time to single out Mayberg, the airline’s main shareholder, in many of the statements the company has made during the lengthy judicial process and its aftermath.

Not much information can be found about Mayberg. For someone in charge of an airline, his bio and picture do not appear on UIA’s Web site alongside the 15 other executives listed under its management team.

He did start AeroSvit in 1994, a Ukrainian airline that’s currently in bankruptcy proceedings with debts of $534 million, three times the value of its assets.

But from there, even 20 pages into a Google search produces no more than that he is a “Ukrainian businessman” and suffice to say he isn’t on LinkedIn either.

A story in the Kyiv Post, the country’s leading English-language newspaper, on the UIA sell-off does bare out some of the bargain basement deals that, in this case, the Ukrainian government rather than its judicial system seems more than willing to dole out to compatriots who can hear the door knob turn on a back door about to open.

The country’s State Property Fund ended up selling its majority share in UIA for about $31 million – not much for a company that booked $371 million in business the year before. There was controversy at the time that the fund had the power to hold an auction that might have fetched a steeper price.

As the rules stood, minority shareholders had first dibs at buying up the airline, and Mayberg appears to have been first in line. Other long-time shareholders, such as Austrian Airlines and the European Bank for Reconstruction and Development, divested their shares in the process.

With Mayberg in control of UIA, his first decision was a curious one for an executive who also held a stake in a ground handler. Mayberg fired Swissport Ukraine and put the airline’s ramp handling and passenger handling contracts out for bid.

Oddly enough, Aerohandling, a ground handler Mayberg was once associated with, won the business despite concerns over the hallmark of a back room deal – lower quality delivered at a higher price.

Even with this turn of events, Swiss-port was still ready to finance the growth of Swissport Ukraine. After all, the ground service provider seemed to be doing quite well even after losing the UIA account. The company had picked up business with 20 other airlines and customers, and expanded its stations to the country’s major aviation sites:

  • Kiev Zhuliany International Airport, Kiev’s other passenger airport and the country’s major business aviation airport.
  • Kharkiv International Airport, serving the country’s second-largest city.

At its March press conference, Swissport said UIA struggled to meet its pro rata share obligations to support further growth right from the beginning of the JV.

When it came to dollars, according to Swissport, both organizations were committed to investing in the subsidiary under the participant’s agreement of the joint venture. When UIA balked at further investment, Swissport offered to provide all of the investment instead.



While the March 6, 2012, shareholder’s meeting undoubtedly triggered the legal action, according to a press release posted on UIA’s own Web site, the bad blood between the two companies started on Day One of the JV:

  • Swissport acquired its UIA share at a fraction of the cost in 2006.
  • Swissport imposed a three-year ground handling services contract containing disadvantageous conditions upon UIA.
  • The contract forced UIA to pay for ground handling services at charges significantly exceeding market prices.

UIA says only after it became a privately-owned airline with Mayberg in charge did it get a voice in running the business.

“UIA entered into the deal aiming to acquire a reliable, decent and professional partner and to further share the profits,” the press release states. Only after numerous negotiations went nowhere, UIA says it offered its partner a “civilized divorce.”

Exactly what this divorce meant remains another mystery, although UIA says all its proposals were rejected.

As the case went through litigation, UIA says “Swissport strongly delayed the proceedings, deviated from providing documents and information on the actual circumstances of the conflict, and thus tried to mislead the court.”

Swissport, however, gave its own examples at its press conference of the erratic nature of the Ukrainian legal proceedings:

  • The company did not receive proper notification from the court in one case.
  • Court hearings were postponed several times and two judges were replaced at the last minute.
  • In several cases, the company heard from its lawyers hours before the court hearing that the court had already decided against Swissport.
  • As Swissport appealed a lower court decision, the company says the court refused to deliver written court rulings, hindering its lawyers’ preparations.

In the end, the Kiev City Economic Court of Appeal commenced on March 27 and discussed the case for 90 minutes, apparently, without Swissport’s lawyers even present, and ruled against the company – a verdict Swissport says it did not even know about until the company received a written court ruling on April 5.