ECONOMIC BENEFITS OF U.S. GOVERNMENT RESTORING THE
UKRAINIAN STATE AVIATION ADMINISTRATION'S (SAA) STATUS
TO CATEGORY 1 FROM CATEGORY II

U.S.-Ukraine Business Council (USUBC), Washington, D.C., Tue, Sep 8, 2009  

WASHINGTON, D.C. - In June 2005, the U.S. Federal Aviation Administration (“FAA”) conducted a safety assessment of the Ukrainian State Aviation Administration (“SAA”) - the governmental authority that regulates and oversees civil aviation in the Ukraine. The FAA found that the Ukraine SAA was not in compliance with ICAO standards for oversight of its airline industry. As a result, the FAA subsequently downgraded SAA’s capability to Category II from Category I. 
 
Under U.S. regulations, the Ukrainian airline serving the U.S. - AeroSvit Ukrainian Airlines - was allowed to continue to operate its flight from Kyiv to New York, but was not permitted to expand operations to the United States until the SAA addressed the discrepancies.

In addition, no other Ukrainian airline may operate to the U.S. until Category I status is achieved. As a result, travel and trade between the two countries is constrained.
 
Following the downgrade to Category II, the SAA applied to the U.S. Trade and Development Agency (“TDA”) for assistance.  A TDA grant was awarded to the SAA in 2006 and a U.S. contractor was selected to help SAA comply with international safety standards and return to Category I status.  The contractor provided the SAA a detailed action plan recommending specific steps for addressing the discrepancies and provided on-site support.

Since that time the government of Ukraine including the Parliament has not taken the necessary steps to comply with international safety standards and this it has not been possible for the U.S Federal Aviation Administration (FAA) to return the Ukrainian State Aviation Administration ("SAA") to Category I status.  Ukraine is still under the restructions which are imposed for countries in Category II. 
 
ECONOMIC BENEFITS OF CATEGORY I STATUS 

Although aviation safety is paramount and should not be compromised for economic reasons, the following data shows the how trade and investment could be enhanced by Ukraine doing what is necessary to go from Category II to Category I. 
 
(1) Since 1997, Ukraine has also experienced air travel passenger growth of 13% per year;
 
(2) AeroSvit Ukrainian Airlines signed a contract with Boeing in 2007 for the delivery of seven new 737-800 aircraft (170-180 seats) with an option to purchase an additional seven if needed;
 
(3) AeroSvit’s original air service plans to the United States included daily flights from Kyiv to not only JFK in NYC, but also service to Chicago and Los Angeles.

(4) AeroSvit’s management anticipated it could provide service to JFK, Chicago and LA, forecasting the transportation of 305,581 passengers per year by 2011 (v. the 173,847 actually flown in 2007) - an increase of 76%; and $112 million in revenues per year by the year 2011 (v. $60 million actually generated in 2007) - an increase of 85%.
 
(5) Without Category I status (and a continued “freeze” in its operations to the U.S.), AeroSvit will only be able to transport in future years those number of passengers that actually flew in 2007 - 173,847 passengers and generate only $60 million in revenues.  AeroSvit being able to expand its operations to the United States is now more important than ever since Delta Airlines is reducing its non-stop New York - Kyiv flight from 12 months a year to around 4 months a year.
 
(6) As important for enhancing trade and investment in the Ukraine and the U.S., Category I status will enable Ukrainian airlines to increase service to the U.S. and - because of a substantial multiplier effect of greater than 3 - will increase trade flows and investments beyond the economic benefits to the Ukrainian airlines.

NOTE:  AeroSvit Ukrainian Airlines and Boeing are members of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.