Bulgaria’s national carrier Balkan Air, owned by the Gad Zeevi Holdings group, halted operations today. The background to the action is the Zeevi group’s claim that the Bulgarian government defrauded it during the acquisition negotiations for the airline, providing inaccurate information about the company’s financial situation and debts.
Last week, Zeevi petitioned the UN Commission on International Trade Law (UNCITL) to order the Bulgarian government to pay $230 million in damages caused the group by the breach of contract.
Today, the Zeevi group announced that in view of the refusal of the Bulgarian government to transfer money to Balkan Air under the terms of the agreement, the group decided not to inject any further money into the company. As a result Balkan Air halted operations this morning, canceling all flights. The Zeevi group added that the company has not been closed and its employees have not been laid off, but a situation has been created whereby it cannot function under airline standards.
The group added, “Intensive effort will be made in the coming days to try to reach an understanding with the Bulgarian government regarding continuing operations by the airline. In the event that the Bulgarian government transfers the money under the acquisition agreement, Balkan Air will be able to resume regular operations.”
The Zeevi group acquired 75% of Balkan Air shares. 20% of the company is held by the Bulgarian government and 5% by its employees. The Zeevi group and the Bulgarian privatization office have disputed the affair since 2000, when it became clear that Balkan Air would be unable to emerge from its severe crisis. The group is demanding compensation for breach of contract, claiming that it has invested in the company far greater sums that it committed to under the terms of the acquisition agreement.
Published by Israel's Business Arena on 14 February 2001